Mike AwadisSenior Vice President1620 26th Street, Suite 230 SouthSanta Monica, CA 90404Phone: 310.401.8060Email: mike.awadis@firstsw.com

Structuring Homeownership Programs in a Competitive Market

NCSHA 2014 Annual ConferenceBoston, Massachusetts

Disclaimer

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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.

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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

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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

Rate Options That Will Not Effect Mortgage Rates

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Gross Rate (%)

Servicing Fee (%)

Guarantee Fee (%)

MBS Coupon (%)

GNMA Type SRP

60 Day Rate Lock

60 Day Servicing Released Price DPA (%)

Lender Fee (%)

HFA P&L (%)

4.000 0.440 0.060 3.500 GN2 1.390 103.47266 104.86266 4.500 1.500 (1.13734) 4.125 0.565 0.060 3.500 GN2 1.800 103.47266 105.27266 4.500 1.500 (0.72734) 4.250 0.190 0.060 4.000 GN2 0.380 105.83594 106.21594 4.500 1.500 0.21594 4.375 0.315 0.060 4.000 GN2 0.880 105.83594 106.71594 4.500 1.500 0.71594 4.500 0.440 0.060 4.000 GN2 1.390 105.83594 107.22594 4.500 1.500 1.22594 4.625 0.565 0.060 4.000 GN2 1.800 105.83594 107.63594 4.500 1.500 1.63594 4.750 0.190 0.060 4.500 GN2 0.380 108.00000 108.38000 4.500 1.500 2.38000 4.875 0.315 0.060 4.500 GN2 0.880 108.00000 108.88000 4.500 1.500 2.88000 5.000 0.440 0.060 4.500 GN2 1.390 108.00000 109.39000 4.500 1.500 3.39000

30YR FIXED RATE GOVERNMENT MORTGAGE

Gross Rate (%)

Servicing Fee (%)

Guarantee Fee (%)

MBS Coupon (%)

GNMA Type SRP

60 Day Rate Lock

60 Day Servicing Released Price DPA (%)

Lender Fee (%)

HFA P&L (%)

4.000 0.440 0.060 3.500 GN2 1.390 103.47266 104.86266 3.500 2.500 (1.13734) 4.125 0.565 0.060 3.500 GN2 1.800 103.47266 105.27266 3.500 2.500 (0.72734) 4.250 0.190 0.060 4.000 GN2 0.380 105.83594 106.21594 3.500 2.500 0.21594 4.375 0.315 0.060 4.000 GN2 0.880 105.83594 106.71594 3.500 2.500 0.71594 4.500 0.440 0.060 4.000 GN2 1.390 105.83594 107.22594 3.500 2.500 1.22594 4.625 0.565 0.060 4.000 GN2 1.800 105.83594 107.63594 3.500 2.500 1.63594 4.750 0.190 0.060 4.500 GN2 0.380 108.00000 108.38000 3.500 2.500 2.38000 4.875 0.315 0.060 4.500 GN2 0.880 108.00000 108.88000 3.500 2.500 2.88000 5.000 0.440 0.060 4.500 GN2 1.390 108.00000 109.39000 3.500 2.500 3.39000

30YR FIXED RATE GOVERNMENT MORTGAGE

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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

Gross Rate (%)

Servicing Fee (%)

Guarantee Fee (%)

MBS Coupon (%)

GNMA Type SRP

60 Day Rate Lock

60 Day Servicing Released Price DPA (%)

Lender Fee (%)

HFA P&L (%)

4.000 0.440 0.060 3.500 GN2 1.390 103.47266 104.86266 5.000 2.500 (2.63734) 4.125 0.565 0.060 3.500 GN2 1.800 103.47266 105.27266 5.000 2.500 (2.22734) 4.250 0.190 0.060 4.000 GN2 0.380 105.83594 106.21594 5.000 2.500 (1.28406) 4.375 0.315 0.060 4.000 GN2 0.880 105.83594 106.71594 5.000 2.500 (0.78406) 4.500 0.440 0.060 4.000 GN2 1.390 105.83594 107.22594 5.000 2.500 (0.27406) 4.625 0.565 0.060 4.000 GN2 1.800 105.83594 107.63594 5.000 2.500 0.13594 4.750 0.190 0.060 4.500 GN2 0.380 108.00000 108.38000 5.000 2.500 0.88000 4.875 0.315 0.060 4.500 GN2 0.880 108.00000 108.88000 5.000 2.500 1.38000 5.000 0.440 0.060 4.500 GN2 1.390 108.00000 109.39000 5.000 2.500 1.89000

30YR FIXED RATE GOVERNMENT MORTGAGE

• Payment difference on a $100,000 loan is $22 per month

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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

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Spreads Between Fannie and Ginnie Continue to Tighten

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Volatility is Back

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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

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Production Trends - continued

• 60 and 120 day moving average locks are up significantly year-over-year

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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 2012 production

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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

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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 email 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