Single-Family Financing Essentials: Mortgage Revenue Bonds January 15, 2015 CONFIDENTIAL HFA Institute 2015

2 HFA Financing Overview City Securities CorporationCONFIDENTIAL Housing Finance Authority Capital Markets Funding Activity Mortgage Lending First-time Home Buyers $$$ HFAs profit from spread between lending and borrowing

3 HFA Financing Overview Traditionally, HFAs have funded lending through the sale of tax-exempt Mortgage Revenue Bonds (MRBs) under U.S. Code § 143 using allocated Private Activity Volume Cap.  Lower interest payments since investors don’t pay tax  Allows for below market-rate mortgage lending (usually)  Spread between single-family mortgage and bond rates limited to 1.125% City Securities CorporationCONFIDENTIAL

4 Investor View of MRBs City Securities CorporationCONFIDENTIAL Unique type of municipal bond  Revenue stream from mortgages o Not really a muni credit, more like ABS  Prepayments make average lives unpredictable  Duration goes against the investor o Mortgage Revenue Bonds sell at a premium to other comparable municipal bonds. Limited buyer base Very much a small niche of the fixed income markets

5 Has Anyone Seen an MRB? City Securities CorporationCONFIDENTIAL

6 Recent Market for MRBs City Securities CorporationCONFIDENTIAL In low interest rate environments, the difference between taxable and tax-exempt rates compresses, reducing or eliminating the funding advantage for HFAs. Loss of funding advantage from tax exemption

7 Recent Market for MRBs City Securities CorporationCONFIDENTIAL MRB issuance decreased significantly in the financial crisis and has stayed low due to rate compression.

8 Current MRB Structures City Securities CorporationCONFIDENTIAL Over that past 5 years, HFAs have struggled to find MRB structures that provide competitive funding for single-family lending programs. Majority of recent bond issues have utilized one or more of the following structuring techniques:  Alter bond structure to attract non-traditional buyers  Use existing assets to provide subsidy to new bond issues  Use overall strength of bond indenture to support bond issues that won’t cashflow on their own

9 Attracting New Buyers City Securities CorporationCONFIDENTIAL Increasing Pool of Investors Make Bonds more Generic Structure bonds so that they can be sold to average life

10 Using Existing Assets City Securities CorporationCONFIDENTIAL Zero-Participation Mortgages  Transfer mortgages that are over tax-law restricted spread into a new deal  Use money that otherwise would have gone to IRS to subsidize lower mortgage rates Refunding  Refinance higher rate outstanding bond issues  Basically create new zero participation mortgages Over-collateralization  Additional mortgages allow bonds to pay down faster  Create shorter average life for investors

11 Using Indenture Strength City Securities CorporationCONFIDENTIAL Front load bond maturities  Structure bonds assuming some prepayment level higher than 0% PSA Increase PAC size  More bonds sold to average life reduces bond yield “PAC in the Back” Structure  Similar benefits to front-loaded maturities  In addition, allows you to move up the yield curve to where rates are lower

12 “PAC In the Back” Bond Structure City Securities CorporationCONFIDENTIAL BOND MATURITY REPORT - "Traditional" Bond Structure == Serial Bonds === 2029 Term Bonds == 2034 Term Bonds == 2038 Term Bonds == 2044 Term Bonds == Premium PAC Bonds ======= Bond Debt Service ===== Date Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalInterest Paid Total Debt Serv Jul 1, , % , % 310, , ,323 Jan 1, , % , % 345, , ,610 Jul 1, , % , % 350, , ,149 Jan 1, , % , % 350, , ,568 Jul 1, , % , % 355, , ,766 Jan 1, , % , % 355, , ,835 Jul 1, , % , % 360, , ,679 Jan 1, , % , % 365, , ,304 Jul 1, , % , % 365, , ,642 Jan 1, , % , % 370, , ,865 Jul 1, , % , % 375, , ,699 Jan 1, , % , % 380, , ,338 Jul 1, , % , % 385, , ,571 Jan 1, , % , % 390, , ,627 Jul 1, , % , % 395, , ,421 Jan 1, , % , % 400, , ,093 Jul 1, , % , % 405, , ,499 Jan 1, , % , % 410, , ,777 Jul 1, , % , % 415, , ,923 Jan 1, , % , % 425, , ,926 Jul 1, , % , % 430, , ,589 Jan 1, , % , % 435, , ,174 Jul 1, , % , % 440, , ,137 Jan 1, , % , % 450, , ,017 Jul 1, , % , % 455, , ,741 Jan 1, , % , % 465, , ,382 Jul 1, , % , % 470, , ,863 Jan 1, , % , % 480, , ,261 Jul 1, , % , % 485, , ,498

13 “PAC In the Back” Bond Structure City Securities CorporationCONFIDENTIAL == Serial Bonds === 2029 Term Bonds == 2034 Term Bonds == 2038 Term Bonds == 2044 Term Bonds == Premium PAC Bonds ======= Bond Debt Service ===== Date Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalInterest Paid Total Debt Serv Jan 1, , % , % 495, , ,653 Jul 1, , % , % 505, , ,183 Jan 1, , % , % 510, , ,544 Jul 1, , % , % 520, , ,815 Jan 1, , % , % 530, , ,918 Jul 1, , % , % 540, , ,853 Jan 1, , % , % 550, , ,608 Jul 1, , % , % 555, , ,195 Jan 1, , % , % 565, , ,692 Jul 1, , % , % 575, , ,021 Jan 1, , % - 215, % 585, , ,181 Jul 1, , % - 220, % 595, , ,884 Jan 1, , % - 225, % 605, , ,416 Jul 1, , % - 230, % 620, , ,775 Jan 1, , % - 235, % 625, , ,869 Jul 1, , % - 240, % 640, , ,884 Jan 1, , % - 240, % 650, , ,634 Jul 1, , % - 245, % 660, , ,197 Jan 1, , % 250, % 675, , ,588 Jul 1, , % 255, % 685, , ,181 Jan 1, , % 260, % 700, , ,597 Jul 1, , % 265, % 710, , ,734 Jan 1, , % 270, % 725, , ,694 Jul 1, , % 275, % 740, , ,375 Jan 1, , % 280, % 750,000 86, ,778 Jul 1, , % 285, % 765,000 73, ,003 Jan 1, , % 290, % 780,000 58, ,950 Jul 1, , % 295, % 795,000 44, ,619 Jan 1, , % 305, % 810,000 30, ,009 Jul 1, , % 310, % 825,000 15, ,144 5,000,000 2,310,000 3,350,000 3,130,000 5,620,000 11,490,000 30,900,000 18,564,274 49,464,274

14 “PAC In the Back” Bond Structure City Securities CorporationCONFIDENTIAL BOND MATURITY REPORT - "PAC in the Back" == Serial Bonds === 2029 Term Bonds == 2034 Term Bonds == 2038 Term Bonds == Premium PAC Bonds ======= Bond Debt Service ===== Date Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalInterest PaidTotal Debt Serv Jul 1, , % , , ,156 Jan 1, , % , , ,521 Jul 1, , % , , ,811 Jan 1, , % , , ,923 Jul 1, , % , , ,681 Jan 1, , % , , ,261 Jul 1, , % , , ,486 Jan 1, , % , , ,461 Jul 1, , % , , ,031 Jan 1, , % , , ,384 Jul 1, , % , , ,191 Jan 1, , % , , ,768 Jul 1, , % , , ,791 Jan 1, , % , , ,516 Jul 1, , % , , ,956 Jan 1, , % , , ,239 Jul 1, , % , , ,169 Jan 1, , % , , ,936 Jul 1, , % , , ,536 Jan 1, , % , , ,967 Jul 1, , % , , ,949 Jan 1, , % , , ,859 Jul 1, , % , , ,847 Jan 1, , % , , ,752 Jul 1, , % , , ,492 Jan 1, , % , , ,067 Jul 1, , % , , ,559 Jan 1, , % , , ,887 Jul 1, , % , , ,132

15 “PAC In the Back” Bond Structure City Securities CorporationCONFIDENTIAL == Serial Bonds === 2029 Term Bonds == 2034 Term Bonds == 2038 Term Bonds == Premium PAC Bonds ======= Bond Debt Service ===== Date Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalRate Maturing PrincipalInterest PaidTotal Debt Serv Jan 1, , % , , ,212 Jul 1, , % , , ,482 Jan 1, , % , , ,572 Jul 1, , % , , ,482 Jan 1, , % , , ,212 Jul 1, , % , , ,762 Jan 1, , % , , ,132 Jul 1, , % , , ,412 Jan 1, , % , , ,512 Jul 1, , % , , ,432 Jan 1, , % - 585, , ,172 Jul 1, , % - 595, , ,203 Jan 1, , % - 605, , ,047 Jul 1, , % - 620, , ,703 Jan 1, , % - 630, , ,078 Jul 1, , % - 640, , ,266 Jan 1, , % - 655, , ,266 Jul 1, , % 340, % 665, , ,984 Jan 1, , % 680, , ,578 Jul 1, , % 695, , ,953 Jan 1, , % 710, , ,094 Jul 1, , % 725, , ,000 Jan 1, , % 735,000 98, ,672 Jul 1, , % 750,000 87, ,188 Jan 1, , % 765,000 75, ,469 Jul 1, , % 780,000 63, ,516 Jan 1, , % 795,000 51, ,328 Jul 1, , % 815,000 38, ,906 Jan 1, , % 830,000 26, ,172 Jul 1, , % 845,000 13, ,203 7,885,000 3,615,000 5,280,000 4,655,000 9,465,000 30,900,000 17,560,332 48,460,332

16 “PAC In the Back” Bond Structure City Securities CorporationCONFIDENTIAL Bond Amounts: Bond TypeTraditionalPAC in the Back Serial Bonds 5,000,000 7,885, Term Bonds 2,310,000 3,615, Term Bonds 3,350,000 5,280, Term Bonds 3,130,000 4,655, Term Bonds 5,620,000 N/A Premium PAC Bonds 11,490,000 9,465,000 Total Bonds 30,900,000 Total Bond Yield 100% PSA)3.30%3.12%

The Municipal Securities Rulemaking Board (the “MSRB”) has adopted MSRB Rule G-23 (“G-23”). G-23 prohibits a broker, dealer or municipal securities dealer (each, a “Dealer”) from acting as a Financial Advisor or Municipal Advisor, as defined in Section 15B of the Securities Exchange Act of 1934, as amended, to an issuer of municipal securities on a particular issue of municipal securities and subsequently switching roles to act as an underwriter or placement agent with respect to the same particular issue of municipal securities. MSRB Notice (the “G-23 Notice”) defines “underwritings” to be both (i) the acquisition, either alone or as a participant in a syndicate or other similar account formed for purpose of acquiring an issue of municipal securities, of all or any portion of an issue of municipal securities, directly or indirectly, from the issuer, as principal and (ii) acting as an agent for the issuer in arranging the placement of such issue. Additionally, the MSRB states in the G-23 Notice, “the primary role of an underwriter is to purchase securities in an arm’s-length commercial transaction between the issuer and the underwriter” and, “the underwriter has financial and other interests that differ from those of the issuer.” Furthermore, G-23 states that an underwriter may provide advice concerning the structure, timing, terms, and other similar matters related to the issuance of municipal securities to the extent the underwriter discloses that such advice is provided with respect to the underwriting and not in relation to a financial advisory relationship, as specifically defined in G-23. The MSRB has also adopted MSRB Rule G-17 (“G-17”). In accordance with MSRB Notice (the “G-17 Notice”), a Dealer, which is involved as the underwriter in the sale of municipal securities on a negotiated basis (the “Underwriter”), is required to provide to the Municipal Entities, as defined in Section 15B of the Securities Exchange Act of 1934, as amended, that are involved in the issuance of such municipal securities the following written disclosures: (a) G-17 requires the Underwriter to deal fairly at all times with both municipal issuers and investors; (b) the Underwriter’s primary role in any anticipated purchase and sale of such municipal securities is to purchase the municipal securities with a view to distribution in an arms-length commercial transaction with such Municipal Entities, and the Underwriter has financial and other interests that differ from those of such Municipal Entities; (c) unlike a Municipal Advisor, the Underwriter does not have a fiduciary duty to such Municipal Entities under the federal securities laws, and is, therefore, not required by federal law to act in the bests interests of such Municipal Entities without regard to its own financial or other interests; (d) the Underwriter has a duty to purchase such municipal securities from such Municipal Entities at a fair and reasonable price, but must balance that duty with the Underwriter’s duty to sell such municipal securities to investors at prices that are fair and reasonable; and (e) the Underwriter will review the official statement for such municipal securities in accordance with, and as a part of, its responsibilities to investors under the federal securities laws, as applied to the facts and circumstances of the Transaction. Furthermore, under G-17 the Underwriter may not recommend that such Municipal Entities not retain a Municipal Advisor. Accordingly, and in compliance with G-17, G-23, the G-17 Notice and the G-23 Notice, City Securities Corporation (“CSC”) hereby expressly states that: (a) CSC is acting as an underwriter or placement agent under G-17 and G-23 and not as a Financial Advisor or Municipal Advisor in connection with all services proposed and/or provided with respect to any of the matters set forth in the City Securities Corporation Possible Financing Options attached to these disclaimers (the “Financial Presentation Materials”); (b) any services provided by CSC as they relate to its role as underwriter or placement agent should not be construed by anyone to be those provided by a Financial Advisor or Municipal Advisor and such notice, as required under G-23 and the G-23 Notice and described above, is hereby provided; (c) the written disclosures, as required under G-17 and the G-17 Notice and described above with respect to CSC acting as the Underwriter, are hereby provided to each recipient of the Financial Presentation Materials; and (d) it is CSC’s understanding that each Municipal Entity that is involved in the issuance of one or more of the municipal securities identified in the Financial Presentation Materials has consulted, or will consult, with such Municipal Entity’s own legal and financial advisors to the extent such Municipal Entity deemed, or will deem, appropriate in connection with the issuance and sale of any such municipal securities. Disclaimer 17 City Securities CorporationCONFIDENTIAL

18 Headquarters 30 South Meridian Street Suite 600 Indianapolis, IN Linda Matkowski Executive Vice President ©2015 City Securities Corporation. All Rights ReservedCONFIDENTIAL Denver Office 2373 Central Park Blvd. Suite 100 Denver, CO Marc Krasner Senior Vice President