1. Single Family Housing Opportunities. . .
Are Bonds Coming Back Annual Conference of the
Texas Association of Local
Housing Finance Agencies
Prepared by Ryan J. Bowen, Chapman and Cutler LLP

2. Local HFC Single Family Bond Issuance
Relatively common from late 1990’s until period leading up to financial crisis.
Virtually no MRB issuance since with the exception of HFCs that participation in the Treasury New Issue Bond Program (NIBP) in
HFC single family activity has largely been focused on MCC and TBA programs.

3. Single Family MRB Financing Mechanics
Proceeds from bond sale deposited with bond trustee
Funds may be invested to reduce negative arbitrage
Participating lenders originate loans to eligible borrowers at the mortgage rates set at the bond closing
Lenders sell mortgage loans to the servicer at a predetermined purchase price
Servicer pools loans purchased from lenders and typically pools them into MBS
Bond trustee purchases MBS from the servicer with bond proceeds deposited under the bond indenture

4. Single Family MRB Financing Mechanics
Borrowers pay interest on mortgage loans to the servicer
Servicer subtracts its fee for servicing the mortgage loans and pays net interest on the MBS to the bond trustee
Trustee subtracts trustee fee, issuer fee, rebate analyst fee and any other bond-related fees and pays the net interest to the bondholders

5. Security for Repayment of Bonds
Single family mortgage revenue bonds are typically issued by a housing finance corporation as special, limited obligations of the issuer payable only from the receipts and revenues produced by mortgage loans (or MBS) purchased pursuant to the program.
Mortgage-Backed Securities:
Loans pooled by the servicer are securitized into GMNA, FNMA or FHLMC Certificates (“MBS”)
MBS generally share the same credit rating as the U.S. Government
GNMA Certificates are backed by the full faith and credit of the U.S. Government
FNMA and FHLMC have an implied guarantee by the U.S. Government

6. General Financing Milestones
Issuer passes general intent resolution.
Apply to Texas Bond Review Board for private activity bond volume cap.
Lender/Servicer outreach.
TEFRA and other state law approvals.
Draft/negotiate documents.
Submit transcript to the Texas Attorney General.
Bond closing.

7. Single Family Volume Cap Application
Use-based allocations in place until August 15 of each year.
Local housing finance corporations may receive allocations based on population and utilization of a maximum of $40 million in volume cap prior to August 15 (subject to reduction based on population). Reductions are also made for low utilization on last volume cap reservation used for single family purposes.
Must close within 180 days of receipt of allocation.

8. Single Family Volume Cap Application
Allocation Based on Population: If population of HFC jurisdiction is:
300,000 or more: $36 million plus $40 per person over 300,000
200,000 – 299,999: $32 million plus $40 per person over 200,000
100,000 – 199,999: $24 million plus $80 per person over 100,000
Less than 100,000: $240 per person.
If HFC jurisdiction overlaps with jurisdiction of another HFC, population must be adjusted.

9. Single Family Volume Cap Application
Utilization Adjustment: The allocation that an HFC would otherwise be eligible for is reduced for low utilization of most recent MRB or MCC program as follows:
Between 25 and 79%: Amount otherwise eligible for times utilization percentage.
Less than 25%: Amount otherwise eligible for times 25%.
No penalty if utilization is 80% or more.
Exception to this rule for low statewide usage of MRB set-aside.
Volume cap rules are complicated; HFCs should consult with bond counsel and financial advisor.

10. TEFRA Approval Process
A public hearing and approval by the “applicable elected representative” is required under the Tax Equity and Fiscal Responsibility Act (“TEFRA”).
In Texas, the “applicable elected representative” is generally a County Judge or Mayor for bonds issued by a housing finance corporation.
For regional HFCs, TEFRA approval must be received from each jurisdiction.
Hearings must be held within a distance reasonably convenient to residents of the HFC’s jurisdiction, which may require multiple hearings for regional issuers.

11. Various State Law Requirements
If HFC’s jurisdiction includes a city with a population of over 20,000 that is not a sponsoring governmental entity of the HFC, the city must pass a resolution approving of the use of proceeds in the city.
Must provide Attorney General with “evidence” of lender demand.
Historically, AG has required 50 basis point lender commitment fee (see 1992 All Bond Counsel Letter).
HFCs must reserve at least 50% of proceeds not reserved for targeted areas for individuals and families with incomes below 80% of the area median income.

12. Ryan J. Bowen
Ryan Bowen is senior counsel in Chapman’s National Public and Health & Education Finance Department. Ryan has experience serving as bond and underwriter’s counsel in connection with a variety of bond financings and as investor’s counsel with respect to the purchase of various state and local government obligations.
Ryan has experience serving as bond counsel and underwriter’s counsel on private activity bond financings, including single family and multifamily housing bond transactions. His housing finance experience includes serving as partnership counsel in connection with multifamily financings involving the use of tax credits.
Ryan routinely advises banks and other institutional investors in connection with the structuring, purchase, placement and securitization of state and local government obligations structured as municipal bonds, loans and leases. He also has experience structuring trust vehicles to enable the securitization of tax-exempt assets.
Ryan has significant experience as counsel to providers of municipal reinvestment products, including representation of investment banks and special purpose entities providing fixed and floating rate investment agreements, repurchase agreements and forward delivery agreements to bond issuers in the public finance market.
Ryan routinely provides counsel on various securities law matters, including SEC and MSRB rules and regulations governing the municipal securities market and disclosure practices.
Prior to attending law school, Ryan worked as a consultant for PwC Consulting (formerly the consulting division of PricewaterhouseCoopers LLP) in Washington, DC.
Chapman and Cutler LLP 111 W. Monroe Street Chicago, IL 60603
T: F: