Mike Awadis Senior Vice President th Street, Suite 230 South Santa Monica, CA Phone: Single-Family Financing Dialogue NCSHA 2015 Annual Conference Nashville, Tennessee

Disclaimer 2 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.

3 HFA TBA Programs Continue to Grow – Despite Volatility Since July 2012 representing 11 state HFAs and over $6.8 billion in new mortgages CYTD new mortgage originations of $3.25 billion Average daily new locks in the last 2 QTRs and year-over-year are up over 100% compared to the same period in 2014

4 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 Provide down payment and closing cost assistance without using HFA funds Flexibility to adjust rates as the market moves -- no yield implications Can be used to provide financing for non-first time homebuyers Can be combined with Mortgage Credit Certificates (MCCs) thus creating a lower effective mortgage rate Gives HFA the option of offering refinances Still more profitable for HFA than traditional 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 MFA has the option to repurchase its MBS at prevailing TBA levels

5 Expanded Product Offerings Offer a variety of rate, fee and DPA options including zero origination fee Layer additional DPA from HFA funded sources Structure a compelling conventional product GSE HFA 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 the HFA product Fund the cash upfront MI Lower the LTV to 95% to increase the chances of getting AUS approval or to avoid investor credit overlays/condos For our top 4 producing HFAs conventional loans represent over 40% of overall volume

6 Spreads Between Fannie and Ginnie II Continue to Tighten

7 Payment Comparison – Conventional to FHA

8 After 5 Years ……..

9 Pair-Off your TBA to Do an MRB Program Despite the tremendous advantages and efficiencies a TBA program provides, some HFAs would rather do MRBs than TBA Hedging loans using TBA reduces the interest rate risk and allows the HFA to accumulate loans for the MRB program Combine a new money deal with a refunding or using zeros FSC provides their TBA clients with the option to pair-off the hedges and take back the loans to use in an MRB transaction Loans must meet MRB guidelines and not have an MCC attached

10 Pair-Off Process Master servicer provides the list of eligible loans for securitization HFA reviews the list and picks the loans it wants to retain for the MRB transaction – “Retained Loans” Once HFA identifies the loans it has the option to either pair-off immediately or request that hedge provider continue to hedge the loans HFA provides pooling instructions for “Retained Loans” to master servicer The MRB eligible MBS can be purchased by the HFA or be warehoused using a liquidity facility (warehouse line) made available by hedge provider Pair-off amounts are settled between hedge provider and HFA on SIFMA “good delivery” date

11 Legal Challenges – Pair-off Costs or Gains Hedge “Designation Costs” have to be identified and assigned by a certain date Are hedge/pair-off costs acceptable expenses for the purpose of bond yield calculation or opening the spread between the mortgage rate and bond yield? What happens in the event of a gain at pair-off?