1. Market Rate TBA Program
Mike Awadis
Senior Vice President
th Street, Suite 230 South
Santa Monica, CA 90404
Phone:
Structuring Homeownership Programs in a Competitive Market NCSHA 2014 Annual Conference Boston, Massachusetts

2. Disclaimer
This presentation is intended for educational and informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this presentation was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute FirstSouthwest’s views as of the date of the report and are subject to change without notice. This presentation represents historical information only and is not an indication of future performance.

3. TBA Program Benefits When Compared to MRB
Market Rate TBA Program
TBA Program Benefits When Compared to MRB
Provides a forward commitment mortgage program with no costs of issuance, negative arbitrage and legal expenses
Produces a significantly lower mortgage rate when compared with Pass-Thru and traditional MRB structures – including using zeros
Fund down payment and closing cost assistance without using HFA funds
Flexibility to adjust rates as the market moves -- no yield implications
Affords HFAs the option to pay higher lender compensation
Can be used to provide financing for non-first time homebuyers
Program is more lender friendly -- less paperwork for the lender
Can be combined with MCCs thus creating a lower effective mortgage rate
Gives HFAs the option of offering refinances
Significantly more profitable for HFAs than tradition MRBs and Pass-Thru structures both on present value and ongoing basis
It can be used as a tool to accumulate MBS for future bond transactions
Either “Pass-thru” or “Traditional MRB” structures
HFA has the option to repurchase its MBS at prevailing TBA levels

4. Expand Product Offerings
Market Rate TBA Program
Expand Product Offerings
Offer a variety of rate options including zero origination fee
Due to Dodd-Frank various rate options will accommodate different lender compensation plans
Allows lenders flexibility to tailor their origination fees in the event of seller contribution
Accomplish above while maintaining net lender compensation, HFA profitability and coupon stack

5. Rate Options That Will Not Effect Mortgage Rates

6. Market Rate TBA Program
Provide More DPA
Higher percentage of DPA proved to work in certain markets despite the higher mortgage rate and payment difference:
Lower average loan amounts
Strong seller market – no contribution to transaction
Higher fixed closing costs
Payment difference on a $100,000 loan is $22 per month

7. Unleash the Potential of Fannie HFA Preferred
Market Rate TBA Program
Unleash the Potential of Fannie HFA Preferred
The most successful HFAs figured out how to structure a compelling conventional product
97% LTV, no LLPA and 18% MI coverage is the best conventional product on the street for FTHB with or without DPA
Make available a higher DPA option with HFA Preferred
Fund the cash upfront MI
Lower the LTV to 95% to increase the chances of getting approved/eligible in DU
30 – 40% of your business should be HFA Preferred

8. Spreads Between Fannie and Ginnie Continue to Tighten

9. Volatility is Back

10. Production Trends
Since July 2012 representing 10 state HFAs and over $3 billion in locks
Year-to-date locks of over $1.5 billion
Average daily locks are up over 50% in the last 12 months

11. Production Trends - continued
60 and 120 day moving average locks are up significantly year-over-year

12. Success Story – WA State Housing Finance Commission
Since implementing the Advantage program in July of 2012, WSHFC’s average monthly lock volume is up over 200% when compared to production

13. Success Story – Fannie Loans Help Increase Production
YTD in WA Fannie production is up 400% when compared to the period from July 2012 thru December 2013

14. Best Practices – What Have We Learned
Market Rate TBA Program
Best Practices – What Have We Learned
Expand your product menu include multiple DPA and rate options
The primary driver of HFA volume is still the need for DPA
Statistics show DPA does not have to be a grant to have a successful program
Jr lien DPA can be a significant source of residual income for an HFA
Manage your pull-thru rate by optimizing lock terms
Don’t give lenders more time than they need to close and sell the loans
This will keep your rate more competitive with market
Make your program as lender friendly as possible – eliminate unnecessary forms and streamline the approval process
Marketing, marketing, marketing – online, newsletters
Develop a robust marketing campaign with your lenders and realtors
Include Fannie Mae execution in your product offering – HFA Advantage is the only viable 97% LTV product on the street with 18% MI coverage
Rate does matter – keep interest spreads tight with market
Maintain flexibility in your gain-on-sale margins