April 5, 2013 National Association of Local Housing Finance Agencies 2013 Annual Conference Panel: Homeownership Tools in a Historic Low Interest Rate Environment Helen Feinberg Managing Director RBC Capital Markets

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2 TBA Market

3 RBC Capital Markets TBA Program Lower Cost, Increased Flexibility RBCCM bankers have worked with RBC’s MBS desk to offer a reduced cost TBA program for HFAs with liquid assets Considerations: Overview: RBCCM has created TBA programs for seven issuers to date Forward trades (GNMA I or GNMA II) can be structured for 30, 60 or 90 day delivery at any time and for any amount Variance for delivering MBS may be customized. RBC offers variability ranging from +/- 20% and +/- 30% to 100% RBC’s TBA program differs from other programs in that the issuer retains ownership of loans until MBS are sold to RBC. The Issuer may choose to sell on a forward basis or wait until MBS are available and sell in the spot market. Other programs purchase all loans from the point of reservation (changing the price each day) and have rights to specific loans. In addition, sponsors retain a right to collect penalties from lenders under certain circumstances. Due to the structure, RBC’s program is more flexible in that it allows an issuer to easily move between bond funding and TBA MBS Sale funding Allows issuers to maintain control of their program – i.e. the issuer establishes mortgage rates, decides when and how to hedge and controls lender relations Required Issuer capital is determined based on the maximum loans that may be reserved before a trade/hedge is executed RBC is a financially strong trading partner due to our Aa3/AA-/AA ratings. Global Finance Magazine ranked RBC as North America’s safest bank from

4 Municipal Pass-Through Bond

5 Summary of the HFA MBS Pass-Through Bond Mortgage Originator Seller / Servicer Creates GNMA or FNMA MBS Bond Trustee Pass-Through Bond Holder Pro rata principal and interest passed through to investors Bond Underwriter Structure & market Pass-Through Bond Housing Finance Agency Mortgage Loan Funding Mortgage Payments Principal & Interest Bond Proceeds Distribution / Official Statement Bond Sale / Purchase Contract The parties to a housing bond transaction and the flow of funds are detailed below. MBS Payments Home Buyer Mortgage Loan Funding Residual Interest 1 st Time Homebuyer, MRB Qualified MCC, Refinance, Other

6 HFA MBS Pass-Through Structure Characteristics Backed by GNMA and/or FNMA collateral $1.00 denomination at closing, $0.01 thereafter; DTC eligible with no redemption notice Can be sold at par or at a premiumNo sinking fund amortization MBS principal received during the month passed through to bond holders on first day of following month Can be sold Tax-Exempt or Taxable Par of Mortgage Backed Securities (MBSs) equal to par of the bonds Full MBS portfolio delivered in advance for refunding and at closing for new money Single 30 year term bond Bonds: No Debt Service Reserve Fund; Lag and trustee fees must be financedAaa / AA+ / AAA rating from Moody's’, S&P, or Fitch respectively Mortgages: All repayments and prepayments call bonds on 1 st of each month

7 HFA MBS Pass-Through Bond Benefits and Concerns Interest rate savings as compared to traditional structure (3.375% bond yield)No Negative Arbitrage (no GICs)Blind pool at pricing, defined pool at closingPublic sale within existing or stand-alone Indenture HFA receives income over time (I/O strip) Up to 60 days forward delivery Facilitates the receipt of Zero Participation interestPublic sale facilitates liquidity and secondary market growthBlending down excess spread can be complicated Benefits: Concerns: Timing of pricing and closing 10 year par call Interest rate risk from loan reservation to bond pricing

8 Building Pass-Through Bond Liquidity $40,863,097 Illinois Housing Development Authority Series 2012A $37,756,249 Iowa Finance Authority 2012 Series 1(Taxable) 2013 Series 1(Tax-Exempt) $200,000,000 Minnesota Housing Finance Agency 2012 Series A & B 2013 Series A & B First Pass-Through bond sold at premium 100% GNMA Portfolio included all tax- exempt MRB eligible loans 12/12/12: , 2.16% yield Premium dollars funded DPA 100% loans originated Taxable NIBP refunding; tax-exempt new money issue 100% loans originated 90% GNMA MBS 10% FNMA MBS Portfolio included all tax- exempt MRB eligible loans Excess spread retained on taxable refunding 12/05/12: Par (T/E) 12/12/12: Par (Tax) Four offerings, including 1st Pass-Through bond issue Partially originated MBS pool First offering 100% GNMA, most recently 65% / 35% Portfolio included all tax- exempt MRB eligible loans 07/31/12: Par 10/03/12: Par 01/09/13: Par Conforming MBS loans on balance sheet $25,000,000 New Mexico Mortgage Finance Authority 2013 Series A Source: Thomson Reuters 1st taxable Pass-Through issue 100% of loans originated 81% GNMA MBS 19% FNMA MBS Portfolio included MCC and other non-conforming loans 11/05/12: Par Over spread on alternative tax-exempt offering; need for subsequent issue averted $49,846,579 Washington State Housing Finance Commission 2012 Series A 2013 Series A Private placed thru FHLB 99.7% GNMA MBS 0.3% FNMA MBS Portfolio included all tax- exempt MRB eligible loans 09/28/12: Par 01/22/13: Par Excess spread retained on taxable refunding 100% loans originated

9 Modified Pass-through Structure applied to Local HFA Bond Transaction $8,270,000 ORANGE COUNTY HOUSING FINANCE AUTHORITY HOMEOWNER MORTGAGE REVENUE REFUNDING BONDS SERIES 2013A (TAXABLE) Modified Pass-Through Structure refunded prior 2.625% Underlying MBS GNMA Collateral carried 4.28% weighted average pass-thru rate (4.78% weighted average mortgage rate) Bonds issued on a Taxable basis to allow issuer to retain excess spreadIssuer had outstanding New Issue Bond Program 3.48%

10 HFA MBS Pass-Through Bond Investor Profile 32% 68% Taxable CrossoverTraditional Tax exempt 3% 1% 30% 20% 46% BankInsurance Co.Money Mngr.CorporationCRA 40 different investors have participated thus far: - 27 investors on tax-exempt - 13 investors on taxable Many of the tax-exempt buyers are participating based on the attractiveness of the tax-equivalent yield. For community banks, CRA mandate makes this product attractive. Many of the buyers on the pure pass- through structure are now participating on the step-in structure as well. Secondary market liquidity has been a major topic of discussion and continues to improve with each subsequent issuance.