Transcript New Issue Bond Purchase Program: Going Forward For NALHFA Spring Meeting May 18, 2011 Gene Slater CSG Advisors.

New Issue Bond Purchase Program:
Going Forward
For NALHFA Spring Meeting
May 18, 2011
Gene Slater
CSG Advisors
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NIBP 2
1. NIBP: What’s Been Learned
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Great Value of Treasury and HFAs working together, with GSEs
Very successful and efficient administrative system
Treasury’s ability to make program work through different rate environments
Value of rate-lock
Adaptability of standardized program to many markets and strategies:
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Warehousing
GNMA sales
Leveraging of limited NIBP allocation for both MF and SF
Success of shorter maturity market bonds
Success in:
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Eliminating or highly limiting negative arbitrage
Supporting fixed rate bond programs
Supporting highly secure, often MBS or risk-share, lending
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NIBP 2
2.
NIBP: Value of Experience
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Many HFAs, especially locals, who didn’t initially participate now see how
valuable and successful it is
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Numerous state and local HFAs have fully utilized or committed their entire
allocations or are limiting production to ration what is remaining
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Single-family volume has often heavily depended on available downpayment
assistance
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Demand by issuer, by market, by SF and MF has often been very different
than initially expected
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Experience now provides much better basis of gauging future demand
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NIBP 2
3.
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Critical Need for NIBP Hasn’t Changed
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Long-term tax-exempt bond rates compared to mortgage rates
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Overwhelming negative arbitrage
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Weak housing markets
Key Questions Going Forward
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Can this extremely valuable experience, operating system and relationships
continue to be used?
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Is there a way to do this under existing legislation?
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NIBP 2
5.
Options for NIBP 2 Given HERA
Helped Develop Two Possible Options
a)
Federal Reserve in the role of Treasury
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b)
Recycling or exchanges of existing MBS
Potential reasons
Concerns
Potential way for Treasury to provide
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Without needing another party
Already established system
Potential legal approach
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Exchange with Fannie/Freddie
Treasury exchanges existing Fannie/Freddie MBS for Fannie/Freddie NIBP 2
Securities
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Potential Approach: Exchanging for MBS
Currently Held By Treasury
NIBP 2
December 2009
2011
HFA’s
Issue
Program
Bonds
HFA’s
Issue
NLBP2
Program
Bonds
$13.8
billion
$13.8
billion
Sell
Fannie/
Freddie
MBS
Treasury
Sell
Exchanged
MBS
Fannie/Freddie
Fannie/Freddie
Sell
Fannie/
Freddie
NIBP
Securities
Est.
$15 billion
$140
billion
Exchange
Fannie/
Freddie
NIBP 2
Securities
Est.
$15 billion
Fannie/
Freddie
MBS
Market
$15 billion
Sell MBS
Treasury
$125 billion
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NIBP 2
6.
Potential Benefits
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No new funds required
No change needed to HERA
Exchange MBSs that Treasury is planning to dispose of over next year anyway
Same administrative system
Only Proposed Adjustments to Increase Success
A.
Program bonds with up to 3% premiums used solely for downpayment assistance
Why critical
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B.
Local HFAs and Many state HFAs have few or greatly reduced resources
NIBP success has been directly linked to downpayment assistance
FHA changes
Importance of downpayment assistance
Flexibility between single-family and multi-family allocations
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To improve performance and match market demand
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NIBP 2
C.
Increase Small Allocation Limit
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To $50 million or $100 million instead of $25 million
Enables successful small programs to continue and not run out of funds quickly
Overall leveraging of program remains substantial
Allows smaller issues to leverage NIBP and GNMA sales
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