0 gkb’s housing finance group public finance headquarters 1400 wewatta street, suite 800 denver,...
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1GKB’s HousingFinance GroupPublic Finance Headquarters
1400 Wewatta Street, Suite 800 • Denver, CO 80202 • (800) 722-1670
Updates on the HFA Single Family Market
NCSHB ANNUAL CONFERENCE | AUGUST 17, 2015 | Annapolis, Maryland
JIM STRETZSENIOR VICE PRESIDENT | [email protected]
2GKB’s HousingFinance Group
Provide Lower Rates MRBs Borrow Short, Lend Long Subsidize
Benefits Through Credit Risk Down Payment Assistance Conventional whole loan indentures
PMI exposure Captive PMI Be the Master Servicer
Other Values Service Loans Locally Flexible Delivery
What is an HFA’s Added Value in the Mortgage Market?
What are my payments?
What do I need to close?
3GKB’s HousingFinance Group
The Fed’s Effect on Mortgage Rates
For the month of June 2015, the Fed chased 30% of new GSE mortgage MBS production.
4GKB’s HousingFinance Group
The Fed’s Big Effect on Mortgage Rates Today
• "An increase in Federal Reserve holdings of Treasury securities also lowered the MBS yield. Using this estimate, the level of the MBS yield is about 76 basis points lower if the Federal Reserve holds 22 percent of the available Treasury securities (on June 30, 2013, this was equivalent to about a $1.93 trillion portfolio). At the mean market share for the Federal Reserve’s Treasury security holdings, a $50 billion purchase of Treasury securities would lower the MBS yield by about 2 basis points."
• "Using these estimates, the level of the MBS yields is about 55 basis points lower when the Federal Reserve holds 24 percent of the available MBS securities compared with when it holds nothing at all (on June 30, 2013, this was equivalent to about a $1.21 trillion portfolio). The same estimate suggests that a $50 billion increase in the Federal Reserve’s MBS holdings would result in an increase for the mean market share of Federal Reserve MBS holdings (from 23.8percent) to 24.8 percent and a decrease MBS yields by around 2 basis points."
Source: “How the Federal Reserve’s Large-Scale Asset Purchases (LSAPs) Influence Mortgage-Backed Securities (MBS) Yields and U.S. Mortgage Rates” Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. December 2014
Mortgage rates today could be
1% to 2% higher without Fed purchasing
30% of new MRB production
The 30 year fixed rate mortgage of 4.25% (as of June 30th, 2013) would have been 5.50% without the Fed’s market influence.
Based on a Fed Study:
5GKB’s HousingFinance Group
Single Family Mortgage Insurance Today
6GKB’s HousingFinance Group
The Mortgage Market Since 2008
7GKB’s HousingFinance Group
Using the Mortgage Market “TBA”
PIPELINE MANAGEMENT
HEDGES MORTGAGE PRODUCTION & SETS
MORTGAGE RATES
MASTER SERVICERU.S. BANK
PURCHASES AND POOLS MORTGAGE LOANS
Loan Proceeds
PROGRAM SPONSOR
LOCAL MORTGAGE LENDERS
ORIGINATES AND CLOSES MORTGAGE LOANS
BORROWER/HOMEBUYER
MBS INVESTORS OR
TBA COUNTERPARTY
MBS Sale
Mortgage Payments
Mortgage Payments
MBS Sale
Loan Sale
CUSTODIANEHOUSINGPLUS
COMPLIANCE + ONLINE RESERVATIONS
8GKB’s HousingFinance Group
Hedging in the TBA Market
Execution
• MRB• Market Execution
Profits
• Use historic pull-through data to optimize hedge strategy Minimize fall-out, if possible
• Encourage early loan delivery
• Use optimal MBS type – GNMA I or GNMA II
• Create “specified pools” desired by investors: CRA investor focused Low Loan Balance (LLB) Mid Loan Balance (MLB) High Loan Balance (HLB)
9GKB’s HousingFinance Group
(1.00)
(0.50)
0.00
0.50
1.00
1.50M
ay-1
3
Jul-
13
Sep
-13
No
v-1
3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Recent Market News
DIFFERENCE IN THE PRICING OF 4% GN I AND GN II
Jan 9, 2015: FHA announces lower annual mortgage insurance premium (MIP) rates. Spreads between GN I and GN II widen and prepayment protection is desired by investors.
10GKB’s HousingFinance Group
MBS Investors Paying Up For Prepayment Protection
• FHA’s lowering annual mortgage insurance rates provided an opportunity. The VALUE of prepayment protection increased substantially.
• One way for an investor to protect against increased prepayments is via loan size. Smaller sized loans are less likely to refinance than larger sized loans due to the relative benefit. The following are some defined categories of specified pools:
– Low Loan Balance (LLB) less than $85,000– Mid Loan Balance (MLB) less than $110,000– High Loan Balance (HLB) less that $150,000
• All of these specified pools have increased in value but the Low Loan Balance (LLB) specified pool has experienced the most dramatic increase.
• Another specified pool type with significant value is a pool created for CRA Investors (financial institutions motivated by Community Reinvestment Act credits).– Note: CRA credit is state specific
MARKET CONDITIONS ARE GREAT FOR CERTAIN SPECIFIED POOLS
11GKB’s HousingFinance Group
Funding Down Payment Beyond Premium Pricing
Increase the amount of Down Payment and Closing Cost Assistance Offered by securitizing 2nd mortgage pools.
More efficient in raising funds than premium bond or TBA funding solutions
Flexible, supported by multiple collateral options Amortizing 2nd mortgages Ginnie Mae MBS Cash Issuer Credit Rating
Various funding options: Taxable or Tax-Exempt Rated or Non-Rated Stand-Alone or Subordinate
Allows an HFA to fund future DPA assistance in the form of 0% 2nd mortgages Deferred 2nd mortgages Amortizing 2nd mortgages
12GKB’s HousingFinance Group
An Alternative Map?
States with active local HFAs using TBA MBS Deliveries include: OH, CA, AZ, TX, OK, KS, LA, FL, GA, MN, NV.
Source: Moody’s Investor Service
13GKB’s HousingFinance Group
Who is Doing What?
U.S. Bank MS – 3rd Party Hedge
U.S. Bank MS – Self Hedge w/ 3rd Party Advice
U.S. Bank MS – Non TBA
Idaho MS – 3rd Party Hedge
Idaho MS – Self Hedge Alabama MS – Self Hedge
Alabama MS – 3rd Party Hedge
Self Servicing – Self Hedge
Multiple Servicers – Non-TBA
Rhode Island
Connecticut
New Jersey
Delaware
Maryland
Washington, D.C.
Self Servicing – Non-TBA
14GKB’s HousingFinance Group
What Are Your Rates?
Conne
cticut
Nebras
ka
Minneso
taIda
ho
Wyoming Iow
a
Mississ
ippi
North C
arolina
Alaska
Colorad
o
Marylan
d
South
Carolina
West Virg
inia
Michiga
n
Washing
ton
Oklaho
ma
Louis
iana
2.000%
2.500%
3.000%
3.500%
4.000%
4.500%
5.000%
5.500%
Gov't Govt w DPA Conv Conv w DPA
15GKB’s HousingFinance Group
2006 2015(estimated)
Whole Loan 30 6
MBS 18 29
Mixed 3 16
MCC 14 33
Changing HFA Strategies
HFA’s switching to (or including) MBS’s are also selling into the cash or TBA market using their balance sheets, “zeros” or TBA as a rate hedge.
16GKB’s HousingFinance Group
Summary
ADDING VALUE
Credit Crisis: 85% of HFA‘s provide Down Payment
Successful Programs: Understand Lenders, and Fill Voids created by
Consolidation, Credit Crisis, and Needs of their Communities
Going Where the Federal Subsidy is – Cash Market Look for opportunities to provide subsidy from Federal
programs, balance sheet and lower costs
17GKB’s HousingFinance Group
This report was prepared from data believed to be reliable but not guaranteed by us without further verification or investigation, and does not purport to be complete. It is not to be considered as an offer to sell or a solicitation of an offer to buy the securities of the entities covered by this report. Opinions expressed are subject to change without notice. George K. Baum & Company may act as a principal for its own account or as agent for another person, in connection with the sale or purchase of any security which is subject in this report.
Disclaimer