MFA SERVICING EXPANSION Management Innovation NCSHA 2017 Annual Conference & Showplace The Evolving Mortgage Servicing Landscape October 16, 2017 Gina Hickman, Deputy Director of Finance & Administration

Servicing: Management Challenge & Opportunity LIMITED MASTER SERVICING PROVIDERS DIVERSIFYING AND GENERATING NEW REVENUE Dependency on master servicing providers; risk to core mortgage program due to lack of interest in RFP process; uncertainty regarding private demand for master servicing providers. Low interest earnings environment; unable to issue bonds due to dysfunction in capital markets; reductions in federal funding; increase funds to support affordable housing programs. SERVICING MODELS EVALUATED Master Servicing Self-Servicing Sub-Servicing 2

Operational Advantages Evaluation Process Ginnie Mae, Fannie Mae and Freddie Mac agency seller/servicer approvals were already in place...SIGNIFICANT! Experience of existing staff in the Homeownership, Servicing and Accounting Departments. Timing was good to expand mortgage servicing due to the more conservative underwriting standards (quality loans) and the low interest rate environment (loans will prepay more slowly). THE NEW PARTNERSHIP WITH IDAHO HOUSING…MFA’S NEW MASTER SERVICER. Development of a 10-year economic feasibility tool. Determination of operational impact (technology, staffing, data security, new processes, etc.) Risk assessment and development of risk mitigation strategies. SWOT Analysis (strengths, weaknesses, opportunities and threats) We also provided $1.7 million in rental assistance and related services for 500 people with special needs. 3

Selection of “Sub-Servicing” Model Benefits to MFA: SUPPORTS STRATEGIC PLAN AND ALIGNS WITH MISSION MFA oversight to allow for ensuring high touch servicing, ability to control program parameters without overlays and restrictions from master servicer, and provide better customer service to collaborate more effectively with lender network. Provide additional resources for other affordable housing programs. Additionally, eliminates uncertainty regarding future interest in master servicing providers; MFA now has a more diverse landscape of third-party service providers to work with. OPPORTUNITY TO INCREASE AND DIVERSIFY REVENUE BASE AS WELL AS REDUCE EXPENSES ASSOCIATED WITH MASTER SERVICING ACTIVITIES A new revenue stream from purchase of mortgage servicing rights and loan warehousing functions. Able to reduce expenses associated with servicing, pooling and securitization processes. OPPORTUNITY TO CONTINUE DEVELOPING ORGANIZATIONAL CAPACITY AND BUILD ON SELLER/SERVICER DESIGNATIONS Federal funding source that can be used for construction or permanent financing for new construction, rehabilitation and acquisition/rehab projects. PARTNERSHIP/MENTORSHIP WITH IDAHO HOUSING Idaho Housing was willing to look at alternative servicing models and provide training and technical support through an onsite process gap analysis identification of data and system interface needs. 4

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Other Important Outcomes Improvements in Agency Operations: VERSUS . Stronger Compliance Management System Process Efficiencies Core System Enhancements IMPROVED, MORE SELF-RELIANT, SUSTAINABLE ORGANIZATION 8

Exploring Your Agency’s Options Suggestions: Time and the Commitment of Resources Designate a project lead within the organization and adjust workloads accordingly Plan, plan, plan… Involve all areas potentially impacted by expansion: Servicing, Homeownership, Accounting and Technology. Be patient and flexible. One thing is for certain, plans and timelines will change. Just don’t give up! Find and use outside expertise “Between 1994 and 2016, first-time homebuyers purchased on average 1.8 million single-family homes each year, accounting for over one in three of all single-family homes sold, and 45 percent of the purchase mortgages originated.”* “First-time homebuyers have led the housing recovery, contributing over 60 percent of the sales growth in the housing market over the past five years and 85 percent of the growth in the past two years. The resurgence of the first-time homebuyer market has contributed to very tight housing supplies and accelerating home prices, especially at the “low” end of the housing market.”* “Unlike repeat homebuyers, first-time homebuyers do not bring another housing unit to the market at the time they are seeking to buy. They represent a shift in housing demand from rental to owner occupancy. Therefore, rising first-time homebuyers in the housing market drain housing inventory and the supply of homes for sale much faster than a similar increase in repeat homebuyers.“* “Since 2007, first-time homebuyers have averaged just 1.5 million a year, which is 300,000 fewer than the historical average. Over 10 years, this amounted to three million first-time homebuyers missing from the housing market. Between 2007 and 2015, the number of first-time homebuyers was lower than its historical average every year. This is consistent with the census data showing a 4-5 point increase in the proportion of 18-34 year olds living with their parents, as well as historically low home ownership rates. As economic growth continues, we expect many of these three million missing first-time homebuyers to eventually buy a home, which will be a source of future growth. In turn, first-time homebuyers who purchased in 2015 and later will likely accumulate sufficient home equity over the next five to ten years to fuel the next wave of repeat homebuyers.”* Educate and communicate with your Board 9

Thank You GINA HICKMAN Deputy Director of Finance & Administration ghickman@ housingnm.org 505-767-2216 www.housingnm.org 344 4th Street SW, Albuquerque NM, 87102 10