Overview of FFB/HUD Multifamily Risk Sharing Program Larry Flood- Treasury October 20, 2014

What is the FFB? 2 Congress established the FFB in 1973 as a “body corporate” and “an instrumentality of the United States.” The FFB is “subject to the general supervision and direction of the Secretary of the Treasury.” The FFB became the central vehicle through which Federal agencies financed programs involving the sale or placement of credit market instruments, whereby only the FFB/Treasury borrowed in the market for the rest of the Government. The FFB provides funding to help Federal agencies efficiently finance their borrowing and lending authorities, and to help the Treasury implement unitary financing of the public debt. Congress gave the FFB the authority to purchase and sell any obligation “issued, sold, or guaranteed by a federal agency.”

What value does the FFB provide? 3 At present, the primary value provided by the FFB is to reduce the cost to the taxpayer of financing Federal and federally-assisted borrowing programs. The FFB finances Federal agencies at rates based on the Treasury’s cost of funds, rather than at commercial rates. The FFB captures income for the taxpayer when the taxpayer bears the risk of loss.  For example, if a commercial lender makes a loan that is 100 percent guaranteed by a Federal agency, the taxpayer bears all the risk but captures no direct value from the loan. The commercial lender generates the profit without the cost of underwriting and without the risk of loss. If the FFB makes the loan, the taxpayer captures the profit, or if the loan defaults the cost to the taxpayer is lower due to the Treasury’s cost of funds.

How Does the FFB Price Loans? 4 The FFB sets lending rates using the comparable rates from the Treasury yield curve, considering the maturity of the loan, the repayment schedule of the loan, and other factors.  In accordance with the lending policy established by the FFB Board, the FFB also charges an additional spread over the Treasury rate to capture the liquidity premium between Treasury securities and the fully federally-guaranteed private sector lending rate. This spread may be included in the lending rate or charged as a separate fee. The method to set rates is applied uniformly to all borrowers under a given program. Borrowers of the FFB are limited to drawing funds incrementally to meet actual, immediate needs. Each drawdown under a loan commitment is individually priced based on current rates.  Borrowers are not permitted to draw from the FFB in order to invest the funds.

FFB Pricing Criteria - Existing Properties 5 FFB financing of the Risk Sharing program is a bridge allowing HFAs to access capital at efficient rates until the statutory prohibition on the use of Ginnie Mae securitization in the Risk Sharing program is eliminated. FFB pricing will be benchmarked to comparable Ginnie Mae Securities for the program type, i.e. NC/SR (221D4) or Existing Properties (223(f). Current benchmark indication for Existing Properties is 105 bps over 10 year Treasuries.

Timing for Closing Existing Properties 6 Property must be converted to permanent phase, FHA Firm Commitment Issued and Designation Request must be submitted to FFB 7 business days prior to funding. All documents to which FFB is a party must be dated as of the funding date, signed by all parties (except FFB), and placed into escrow on Monday 3 days prior to funding. FFB executes all documents on Tuesday prior to funding.

Timing for Closing Existing Properties – Cont 7 FFB sets Certificate rate by Noon on Wednesday prior to funding. Rate is calculated using the Treasury yield curve of COB the prior Business Day. HFA, once it knows the Certificate rate, is given until COB on Wednesday to opt-out of the transaction. Closing/funding will occur on Thursday.

NC/SR Pricing Criteria 8 40 Year term is fine if allowed by FHA insurance. FFB is evaluating providing insured draws as well as funding upon completion. Pricing could be as much as 50 basis points or more higher than for Existing Properties depending on cost of forward rate lock. There will likely be a fee to extend the construction phase beyond scheduled date.

FFB/HUD Program Goals 9 To provide HFAs with an execution comparable to what the private market would provide if FHA risk sharing project loans could carry the Ginnie Mae guarantee; To provide HFAs with an efficient way to finance the acquisition or refinancing of existing multifamily properties; To provide either insured draws during construction, or a guaranteed federal take-out on insured-upon- completion transactions.