1. Using NIBP and TCLP May 19, 2011 Sarah Apsel, Domestic Finance Theo Polan, Fiscal Operations and Policy

2. 2 Program Background: Historic Muni vs. Treasury Yields Spreads on municipal housing bonds widened to levels where the economics of the HFA business model could not produce a competitive mortgage rate

3. 3 30yr Muni AMT Housing Bond Rate - 10yr UST Spread HFA Initiative Concept proposed

4. 4 Program Background Market Symptom Potential Result Applicable Legislation Program Lack of long term financing Unmet demand for HFA mortgages HERANIBP Lack of affordable liquidity Financial Strain on HFAsHERATCLP

5. 5 NIBP Allocation Breakdown A total of $15.3 bln was allocated for usage under the New Issue Bond Program in December 2009 Local HFA allocations totaled $2.0 bln, or 13.19% of total allocations

6. 6 NIBP Usage Breakdown As of April 30, 2011, HFAs had used a total of $6.19 bln, 41% of total NIBP allocated funds As of April 30, 2011, Local HFAs had used a total of $0.76 bln, 38% of Local allocated funds Local HFAs have drawn down 12% of total funds used to date

7. 7 Local HFA Usage Breakdown The majority of Local HFA issuance has been in MultiFamily NIBP Local HFAs have drawn down $224 mm in Single Family funding Local HFAs have drawn down $539 mm in MultiFamily funding

8. 8 NIBP Usage Pre- and Post- Program Changes Prior to the re-rate lock on September 1, 2010, HFAs drew down a total of 15% of allocated funds*. In the four months from the Program changes taking affect and December 31, 2010, HFAs drew down an additional 14% of funds from escrow. Local HFAs used 7% of funds prior to September 1, 2010*, and an additional 31% of funds in the eight months between Program changes taking effect and April 30, 2011. *Figures include simultaneous issuance

9. 9 TCLP Update  3 HFAs have exited  Other reductions due to gradual redemption  Partial reissuance for switch to private liquidity now permitted

10. 10 Housing and Economic Recovery Act of 2008 Tax Exempt Bond Cap Preferred Stock Purchase Credit Facility MBS Purchase

11. 11 Housing and Economic Recovery Act of 2008 Limited to GSE Obligations HERA MBS Purchase Authority Expiration 12/31/2009 Subject to Credit Reform S > 0 : Cost to Gov S < 0 : Profit to Gov Positive Subsidy Negative Subsidy

12. 12 Obligation Process Appropriation Apportionment Obligation SF/MF Are separate Programs Considers legality, policy implications, cost/benefit Approves credit subsidy calculations Limits duration of purchase authority

13. New Issue Bond Program Changes Period to draw funds from escrow extended one year Each HFA/Indenture now allowed 6 total draws from escrow Interest rate re- lock provided to allow for bond issuance at competitive rates 13

14. 14 New Issue Bond Program Rate Ceiling HFA’s choice of day during ceiling lock period: Dec 2-10, 2010 Date of Notice of Interest Rate Conversion 7 days prior to release Full Range 10 yr Tsy Minimum + Risk Premium All rates struck as of the close of business the previous business day

15. HFAs took advantage of the relatively low 10 yr CMT at the beginning of the rate ceiling window, and locked in 2011 ceilings before rates trended higher NIBP Rate Ceiling Window 15

16. 16 HFA cost of capital under NIBP vs 10yr UST HFA CapCost = 0.6 x NIBP rate + 0.4 x Market Bond Execution NIBP rate = 10yr CMT + 60 bps (AAA credit premium) Dec 2009 – Aug 30, 2010 CMT = 3.37% (WAvg Locked 10yr CMT rate) Aug 31, 2010 – current CMT = fluctuates with market (re-rate lock) Market Bond Execution = 3.4% (Avg WAC of 75 market bond transactions) Market bond transaction dates: Dec 2009 to current (AAA-AA issuers) Avg WAC of market bond transactions was similar for: 1.) the entire time series; 2.) pre modification period; and 3.) post modification period Introduction of re-rate lock

17. 17 Influence of re-rate lock and 10yr yields on NIBP cost of capital HFA relative cost of capital improved with introduction of re-rate lock Introduction of re-rate lock

18. 18 HFA Full Spread MBS Rate vs FRE Weekly Primary Rate Doesn’t account for potential differences in borrower credit quality and GSE LLPAs (LLPA = loan level price adjustments) Full Spread HFA MBS = HFA Capital Cost + 112.5 bps HFA capital cost calculated using same method as previous chart Dec 2009- Aug 2010 = Wavg Locked 10yr CMT + Avg Mkt Bond WAC Aug 2010 – current = Market CMT rate + Avg Mkt Bond WAC FRE Weekly Primary Rate = weekly primary rate survey Introduction of re-rate lock

19. 19 Single Family Escrow Drawdown HFAs may increase or decreases $ amt, after drawdown notice is given. $ Time Notification of release 21 days prior to release date* Time HFAs may NOT extend draw date (later), after drawdown notice is given. $ *HFAs must submit notice of escrow withdrawal at least 21 days prior to release date < 60 days

20. 20 MultiFamily Escrow Drawdown *HFAs must submit notice of escrow withdrawal at least 14 days prior to release date $ Time HFAs may NOT extend draw date (later), after drawdown notice is given. $ HFAs may increase or decreases $ amt, after drawdown notice is given. Time Notification of release 14 days prior to release date* < 120 days

21. 21 Avoid Blackout Dates HolidayDates not Available Memorial DayFriday, May 27 Memorial DayMonday, May 30 U.S. Independence DayFriday, July 1 U.S. Independence DayMonday, July 4 Labor DayFriday, September 2 Labor DayMonday, September 5 Columbus DayMonday, October 10 Veterans DayFriday, November 11 Day Before ThanksgivingWednesday, November 24 Thanksgiving DayThursday, November 24 Day After ThanksgivingFriday, November 25 Multifamily Closed PeriodMonday, December 19 - Friday, Dec 30 ChristmasFriday, December 23 Christmas DayMonday, December 26, (Observed) Single family Closed Period Tuesday, December 27- Friday, December 30 All HFAs MTWThF XXXX XXXX XXXX T-Bill Investors Thursdays only