Structuring Homeownership Programs in a Competitive Market Presented by: Jeff Sula Director, RBC Capital Markets October 20, 2014

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RBC Capital Markets 2 Competitive Market Has Resulted in Major Changes at HFAs Source: (1) HFA Single-Family Bond Financing Will Increase, Driving Revenue Growth, July 30, 2014 (2) State Housing Finance Agencies Statistical Information, Five-Year History | September 2014 (3) Housing Finance Agency Loan Delinquencies Remain High But Should Not Affect Ratings, November 18, 2013 “… bond financing, which prior to 2011 financed nearly all of HFA single-family mortgage loans, plunged to being 33% of HFAs’ mortgage funding source in 2013.” (1) “... most HFA programs are unable to add new loans because of adverse market conditions. Thus, they face a disadvantage compared to state pools that have newer loans with better performance.” (3) “Fiscal 2010 remains the only year total assets and total debt increased since the housing crisis in 2008.” (2)

RBC Capital Markets 3 State HFAs Historical Loan Portfolio and Debt Balances: Source: State Housing Finance Agencies Statistical Information, (Fitch)

RBC Capital Markets 4 North Carolina HFA Taxable Refunding Series 35 Highlights  RBC CM executed a marketing plan to reach a broad institutional investor base of traditional mortgage revenue bond buyers and cross-over taxable investors  The Series 35 POS contained detailed recent information about the transferred loan pool in response to investor inquiries in connection with Series 34 which priced in October of 2013 helping to expand the investor base  The refunding increased the amount of subsidy available to the Agency and will allow for greater program flexibility in the future $54,335,000 North Carolina Housing Finance Agency Home Ownership Revenue Refunding Bonds Series 35 (Taxable Interest) Institutional Pricing Date:April 24, 2014 Delivery Date:May 6, 2014 Bond Ratings:Aa2/AA (Moody’s/S&P) Bond Rate:3.00% RBC Role:Senior Book-Running Manager  Taxable mortgage revenue bonds structured as semi-annual serial bonds from 01/01/15 through 01/01/25 and a 5-year average life PAC priced at par  Bond proceeds used to refund $ million outstanding tax-exempt bonds supported by $ million transferred loans  The Agency achieved 2.254% yield spread with a bond yield of 3.001%, producing NPV savings of over $6.551 million or 12.06% of par at 100% PSA Transaction Summary

RBC Capital Markets 5 MassHousing Single Family Housing Revenue Bonds Series 171 Highlights  Incorporating interest only participation loans into Series 171 allowed MassHousing to bring prior tax plans into yield compliance while subsidizing new loan production  Transferring surplus loans reduced the average life of the offered bonds, lowering MassHousing’s overall borrowing cost $50,000,000 Massachusetts Housing Finance Agency Single Family Housing Revenue Bonds Series 171 (Non-AMT) Institutional Pricing Date:August 6, 2014 Delivery Date:August 20, 2014 Bond Ratings:Aa2/AA (Moody’s/S&P) Bond Rate:3.04% RBC Role:Senior Book-Running Manager  Non-AMT new money bonds structured as semi-annual serial bonds from 06/01/15 through 12/01/2026, term bonds in December 2029, 2034, 2037 and a 5-year average life Premium PAC  Bond proceeds used to fund $51.5 million new loan production subsidized by $4 million transferred loans and $6.3 million interest only participation loans  The Agency achieved full spread with a bond yield of 3.04% and a loan WAC of 4.425% Transaction Summary

RBC Capital Markets 6 Minnesota HFA GNMA/FNMA Pass-Through 2014 Series A Highlights  This was the first bond offering to incorporate a gain or loss on the Agency’s hedge position into the bond yield calculation  RBC CM pre-marketed with a diverse group of investors, including existing Pass-Through Bond investors, as well as many traditional taxable investors and cross-over buyers  The 3.00% bond coupon (sold at par) was 20 – 30 bps through comparable GNMA/FNMA TBA yields at the time (assuming 100% PSA)  The Agency pared out of a like amount of TBA hedges and will recover the corresponding losses over time in mortgage yield  Taxable equivalent yield for a corporate investor in the 35% tax bracket would be 4.60%, making this trade advantageous as compared to purchasing MBS in the TBAS market $38,526,925 Minnesota Housing Finance Agency Homeownership Finance Bonds, 2014 Series A (GNMA and FNMA Pass-Through Program) (Non-AMT) Institutional Pricing Date:June 10, 2014 Delivery Date:June 19, 2014 Bond Ratings:Moody’s: Aaa Bond Rate:3.00% RBC Role:Senior Book-Running Manager  Pass-Through Bond was structured as a single, 30 year maturity with no predetermined sinking funds  Bond proceeds used to fund the acquisition of $38 million of new loan production (50%/50% GNMA/FNMA split) that was hedged in the Agency's reservation pipeline  Agency achieved full spread with a bond rate of 3.00%, a net pass-through rate of approximately 4.00%, and a loan WAC of 4.67% Transaction Summary

RBC Capital Markets 7 -Bond counsel (Kutak Rock) allowed charges associated with TBA hedge pare-off to be factored into the bond yield -Hedge termination losses increased bond yield, hedge termination gains (to the extent they had existed) would have reduced bond yield -Hedge termination losses will be recovered in loan yield over time -Hedges must be formally identified and assigned to a specific bond offering -ID-ing the hedges does not necessarily force a bond deal, it allows termination charges to be recovered in yield should the corresponding mortgage loans be pledged to a bond deal -Allowable hedges are ID’s utilizing the FIFO method based upon hedge settlement (issuer cannot selectively ID most advantageous hedges) -Hedges must be terminated no more than 14 days prior to bond settlement Full Spread was Generated by Managing Both Bond and Mortgage Yield Bond Yield Loan Yield -Minnesota had been “buying up” and “buying down” the pass-through rate on the FNMAs; the tool by which this is done is through adjusting the Guaranty Fee to get to full ½ increments -“Buying up” required an up front fee, reducing the ongoing fee, and vice versa on “buying down” the fee -The net effect of these adjustments was applied to the mortgage loan(s) in the form of yield points -RBC CM worked closely with the Agency, getting “under the hood” on its program management, in order to achieve a full spread deal

RBC Capital Markets 8 Hedge Identification Form Qualifies TBA Pare-Off Fees as Yield Eligible

RBC Capital Markets 9 Historical Tax-Exempt New Money Pass-Through Bond Spreads T/E Pass-Through Bond yields are now through that of current coupon GNMA TBA yields at 100% PSA (1)Spreads of Pass-Through bonds priced prior to 2014 are calculated based on GNMA TBA 3.00% yield, GNMA TBA 4.00% yield thereafter. Source: Bloomberg  # of deals:-18  High of Yield:-4.00%  Low of Yield:-2.15%  High Spread:-77bps  Low Spread:-24bps