Growing the Financial Capabilities of HFAs Strategies used by New York City Housing Development Corporation

October 21, 2014

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Table of Contents

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HDC’s role in Housing New York



Background on NYCHDC’s Bond Programs

 HDC Bond Programs: MFHRB (“Open Resolution”), MFSRB (“Mini-Open Resolution”) and Stand-Alone issuance 

Strategies used by NYCHDC

 Strategy 1: General Strength and Flexibility of MFHRB   Biggest asset and flexible program financing vehicle MFHRB financials, asset composition, debt portfolio and investment portfolio  Strategy 2: HDC Subsidies and their leveraging  Leverage through securitization  Leverage CRA Credit needs and investment opportunities through Loan Participations  Strategy 3: Recycled Bonds  Preserve volume cap to maximize 4% Tax-Credit Investments  Strategy 4: Utilize fee income for operations 2

HDC Will Continue To Play A Critical Role Under The New Housing Plan

 Mayor de Blasio rolled out the City’s new housing plan,

Housing New York

, on May 5 th , which commits to create and preserve 200,000 affordable housing units over 10 years.  Since 2003, HDC has financed 112,513 units under prior administration’s housing plan and issued over $13.7 billion in bonds.

 HDC, in working with other City housing and community development agencies, was involved in shaping the policy and strategies in Mayor de Blasio’s new housing plan. HDC will continue to provide efficient and innovative financing tools to help implement the plan and achieve the 200,000-unit goal.

 Plan calls for HDC to issue approximately $11 billion of bonds over ten years  Since 2011, HDC issued an average of $1.2 billion of bonds per year.

 HDC will continue to use taxable issuances as well as tax-exempt (new volume cap and recycled) bonds to finance affordable housing in the City.  Plan calls for HDC to contribute $1.14 billion in subsidy loans and securitization proceeds   Since 2003, HDC has provided $1.5 billion in subsidy loans to projects.

On May 1, HDC worked with the City to re-leverage certain securitized assets and generated approximately $160 million for the City’s affordable housing objectives.

 HDC also expects a new securitization with the City in 2017 to generate approximately $125 million to fund affordable housing.

 In addition, HDC will continue re-leverage its assets through loan securitizations and bond refundings to generate funds for affordable housing.

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Overview – HDC Bond Programs

Multi Family Housing Revenue Bond Resolution (the “MFHRB or Open Resolution”)  Established in 1993, the Open Resolution is HDC’s largest single asset, with over $4.04 billion of bonds outstanding in 139 series* and in excess of $4.85 billion of multi-family loans, reserves and other assets.

 The Open Resolution permits the issuance of an unlimited amount of parity debt.

  Annual net income for Open Resolution has averaged over $40 million over the past five years. Surplus revenues can be withdrawn from the Resolution, subject to rating agency cash flow tests.

Rated Aa2/AA+ by Moody’s/S&P; 123% over-collateralization*.

Multi Family Secured Revenue Bond Resolution (the “Mini-Open Resolution”)  Established in 2005, the Mini-Open Resolution has $104 million of bonds outstanding in 5 series* with $161 million of outstanding mortgage loans**.

  Permits the issuance of an unlimited amount of parity debt to finance secured mortgage loans Rated Aa1 by Moody’s; 154% over-collateralization*.

Stand Alone Issuance  Conduit financing for middle-income, 80/20, and Liberty Bond deals  No credit risk to the Corporation * As of January 31, 2014 ** As of May 31, 2013, but including full anticipated permanent loan amount for Dayton Towers, which is still in construction and still funding.

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HDC Balance Sheet

179% Growth in Assets Since 2003 $14.0

$13.0

$12.0

$11.0

$10.0

$9.0

$8.0

$7.0

$6.0

$5.0

$4.0

$3.0

$2.0

$1.0

$0.0

Assets Liabilities $4.66

Net Assets $13.01* 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 HDC Fiscal Year

Fiscal Year Basis (11/1-10/31) *As of 7/31/14 - Unaudited Financials   Every dollar of revenue HDC earns contributes to the further production of affordable housing.

There is an important multiplier effect in HDC’s Open Resolution that creates enhanced resources for the Corporation.

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MFHRB Resolution Provides Bondholders with Strong Security and HDC with a Flexible Program Financing Vehicle



Strong Bond Security

Covenant to not adversely affect ratings  Resolution activity governed by parity cash flow stress tests  Rating agency “valuation” of each mortgage asset at AA-level 

HDC Program Flexibility

Allows usage of any mortgage insurance or subsidy program  Permits unenhanced / unsubsidized mortgage lending  Enables flexible mortgage rate setting  Diversified mix of multi-family mortgage assets  Very low historical delinquency/default experience  Experienced mortgage underwriting and servicing staff  Provides construction lending capacity  Permits subordinate lien loans  Allows surplus cash withdrawals 6

$7.0

$6.0

$5.0

$4.0

$3.0

$2.0

$1.0

$0.0

The MFHRB Resolution Balance Sheet

MFHRB Balance Sheet Assets Liabilities Net Position

Fiscal Year Basis (10/31) *As of 7/31/14 – Unaudited Financials

$1.6

HDC Fiscal Year $6.35*

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Strategy 1: Use the Surpluses Created and Maximize the Value of the Open Resolution

 HDC uses prepayments to lend to new projects or call bonds that are optionally redeemable. We try to maximize this income to offset lost principal and interest that has been received from the prepaying loan.

 Prepayments of subsidy loans are particularly helpful.  We take net income semi-annually after debt service is paid and this money goes into the corporate services account for future lending; however, we keep a cushion in the Revenue Account for projects under construction.  As HDC pays down bonds that have higher interest rates we often need to re-leverage the portfolio to raise new money for housing programs.  Over-collateralization gives us significant breathing room and the ability to be patient for delinquent projects and any required workouts.

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Strategy 1: Use the Surpluses Created and Maximize the Value of the Open Resolution

 The importance of HDC’s being cash collateralized  83.3% of HDC’s funds are invested for 5 years or fewer  Currently, 9% of HDC’s portfolio consists of unhedged variable-rate debt  The unhedged variable-rate debt allows HDC to earn spread, especially in the current low-interest rate environment.

 Rising interest rates will reduce our ability to earn spread, however, this will be offset by increased income from our investment portfolio. 9

MFHRB’s Investment Portfolio

Investment by Type* Investment Maturity by Account* $Millions 600 500 400 300 200 100 0 Less than 1 Bond Proceeds Investments $789 million DSRF Investments - $90 million 1 to 5 6 to 10 Years to Maturity 11 to 20 21 and greater

* As of January 31, 2014 for a total of $879mm.

** Federal Agency Securities include FHLMC, FHLB and Farmer MAC 10

MFHRB’s Debt Portfolio

Outstanding Debt: $4.4B* Characteristics of Interest Rate Hedges



$218.5 million of Interest Rate Cap Agreements (par amount as of April 30, 2014)

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Counterparty -- Goldman Sachs Mitsui Marine Derivative Products, L.P. (“Aa1/AAA”)

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Strike Rate -- 7.35%

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Long maturity dates (amortizing notional out to 2032)

*As of April 30, 2014; includes NIBP Bonds 11

Strategy 2: Leveraging HDC’s Subsidy Loans

 HDC has provided over $1.5 billion in 1% subordinate loans funded from its corporate reserves since 2003  Leveraging Subordinate Permanent Loans: Securitization  HDC is able to leverage these 1% subsidy loans by securitizing them  Since 2003, HDC has generated approximately $580 million in securitization proceeds.  These securitization proceeds, along with the excess spread generated under the Open Resolution, continue to provide significant funds for additional HDC subsidy.  This additional subsidy, once it is loaned out, can be securitized at a future date 12

Strategy 2: Leveraging HDC’s Subsidy Loans

 Leveraging Subordinate Construction Loans: Participation Programs  During construction phase, HDC has a program that transfers 100% participation interests in its subordinate construction loans to Banks seeking CRA Lending credit  Banks provide the loan capital to HDC for the duration of the construction period, allowing HDC 18-24 months of additional investment opportunities  All repayments are due at the end of the construction period, so the full loan amount is available for HDC to invest for the full time period 13

In Addition to Credit Enhancements, There are Subsidy Programs Supporting the MFHRB Mortgage Loan Portfolio

Project Subsidy Program Subsidy Loan Totals

Percentages reflect ($) par amount of total permanent mortgage loan portfolio as of January 31, 2014; Excludes NIBP; Excludes M-L Restructuring Second and Third Mortgage Loans.

1,800 1,600 1,400 1,200 1,000 800 600 400 200 -

Annual Total Cumulative Total Since 2003

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

*As of 07/31/14 14

Strategy 3: Recycled Bonds Program

 The Housing and Economic Recovery Act of 2008 (HERA) allowed for the recycling of prepayments from tax-exempt multifamily housing bonds that had been previously redeemed and thus no longer available for tax exempt loans.

 HDC manages the recycling by issuing Convertible Option Bonds (COBs) or by directly allocating prepayments to new loans.

 COB structure (usually less than 1-year term and callable after 3 months) serves as an effective tool for recycling:  Bridge the timing gap – The statute requires that the refunding bonds be issued (i) within six months of loan repayment, (ii) not later than four years of original issuance, and (iii) before the maturity of original bonds (tax-credit bonds tend to have shorter term).

 Reduce carrying costs – COB rate is usually lower than the rate for a typical four-year tax credit bond.

 Since this statute was put in place, HDC has developed a program that has successfully recycled approximately $893 million of tax-exempt bonds either through issuance of COBs (two-thirds) or direct allocations (one-third), to fund 67 developments containing a total of 20,387 units (3,971 units of new housing and 16,416 of preserved units).  HDC has also transferred over $313 million of Recycled Volume Cap to NYSHFA since 15 2012..

Recycled Bonds Program

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Benefits of Recycling

 In states, particularly NYS, where there is a scarcity of volume cap, recycling creates capacity for tax exempt bonds.

 Allows Issuers to prioritize their use of new money volume cap allocated for multifamily housing to be used on projects which will have “as of right” LIHTC.

 Recycling is a tool to encourage more affordability in mixed income projects. Such projects need to satisfy the normal tax exempt bond rules of affordability in order to qualify for the tax exempt financing.

 Permits more efficient use of volume cap for 80/20 financings, with a portion of the bonds that are in excess of the 50% requirement (for LIHTC) utilizing recycled cap.

Limitations of Recycling

 Recycled bonds are limited by supply and demand constraints.

 Supply is limited because only HFAs that issue a great deal of private activity bonds for deals with tax credits will have large prepayments available for recycling.

 Demand is limited because most multifamily housing requires significant subsidies and thus need LIHTC and demand for recycling would go up if volume cap was less available than is the case generally today.

 HDC is unusual because we have such affordable housing needs across income spectrums that we subsidize housing at non-tax credit levels and have historically been private activity bond cap constrained.

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Strategy 4: Other Income - Fees

 HDC funds much of its operations from fee income. We charge fees for:  Loan origination  Loan servicing  If borrower prepays, we charge PV of lost servicing fee at time of prepayment  Regulatory Oversight/Asset Management  Additionally, borrowers are responsible for Costs of Issuance and expected Negative Arbitrage, both of which are paid at loan closing.  Due to less frequent prepayments, fee income is generally much steadier income for Multifamily lenders than for Single Family lenders. 17

Summary

 HDC’s mission is to increase the supply of multi-family housing, stimulate economic growth and revitalize neighborhoods by financing the creation and preservation of affordable housing.

 HDC uses an array of financial tools to meet the challenge of our new Mayor’s housing plan, which is aggressive but essential given the need for affordable housing in NYC.  Many of these tools would be similarly effective in the “toolboxes” of our fellow HFAs as they deal with this need in their own cities and localities. 18

Questions & Answers

Please visit our website: www.nychdc.com

Contacts:

Richard Froehlich

Chief Operating Officer, EVP for Capital Markets, and General Counsel

Phone: (212) 227-7435 Email: [email protected]

Ellen Duffy

Senior Vice President for Debt Issuance and Finance

Phone: (212) 227-8619 Email: [email protected]

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