0. Single-Family Financing Essentials: MRBs Current Market & Executions
Capital Markets
2016 HFA Institute
Single-Family Financing Essentials: MRBs
Current Market & Executions
January 14, 2016

1. Disclaimer
RBC Capital Markets, LLC (“RBC CM”) is providing the information contained in this document for discussion purposes only and not in connection with RBC CM or Royal Bank Canada serving as Underwriter, Investment Banker, municipal advisor, financial advisor, swap counterparty or fiduciary to a financial transaction participant or any other person or entity. RBC CM will not have any duties or liability to any person or entity in connection with the information being provided herein. The information provided is not intended to be and should not be construed as “advice” within the meaning of Section 15B of the Securities Exchange Act of The financial transaction participants should consult with its own legal, accounting, tax, financial and other advisors, as applicable, to the extent it deems appropriate.
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Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC

2. Market Conditions Will Drive Pricing Levels for an MRB Issuance
On December 15, 2015, the Federal Reserve raised interest rates for the first time in nearly a decade
Shift in “AAA” MMD & 10-Yr Treasury Since January 2015
10-Yr “AAA” MMD & 10-Yr Treasury January 1, 2013 to Present
Source: TM3, Thomson Reuters
10, year “AAA” MMD and 10 year Treasury shown to represent different average lives of municipal transactions
Rates as of January 12, 2016
Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC

3. HFAs Can Utilize Numerous Approaches for a Fixed Rate Offering
Fixed Rate Mortgage Revenue Bond Issue Without Structure
Higher cost of funds
30 year level debt service
Serial and term bonds
No PAC bond
Cross-calling
Bond proceeds can acquire fully originated loan portfolio or acquisition fund (MBS or Whole Loan)
Extended delivery (up to 6 or 7 weeks without pricing penalty) to mitigate negative arbitrage in acquisition fund
Fixed Rate Mortgage Revenue Bond Issue With Structure
30 year level debt service
Serial and term bonds
Issuance will include a PAC bond
Some limited ability to cross-call
Bond proceeds can acquire fully originated loan portfolio or acquisition fund (MBS or Whole Loan)
Extended delivery (up to 6 or 7 weeks without pricing penalty) to mitigate negative arbitrage in acquisition fund
MBS Pass-Through Bond
30 year debt service
One single maturity; par and premium structures
Monthly redemptions from underling GNMA and GSE MBS
Underlying collateral and average life expectations drive bond pricing
Fully originated MBS portfolio required at bond settlement, though can sell blind pools
No cross-calling
Extended delivery (up to 6 or 7 weeks without pricing penalty)
Ability to dual track production with TBA and asset sales
Lower cost of funds
Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC

4. The Tax Exempt Variable Rate Market Has Remained Stable and Can Reduce Interest Costs
The weekly SIFMA index has been set at 0.01% since October 23, 2015
Shift in Weekly SIFMA & 30-Day LIBOR Since January 2015
Weekly SIFMA & 30-Day LIBOR January 1, 2013 to Present
From VA Secretary of Transportation vFINAL
Source: TM3, Thomson Reuters, SIFMA
Weekly SIFMA Index and 30 day LIBOR shown to represent different average lives of municipal transactions
Rates as of January 12, 2016
Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC

5. A Judicious use of Variable Rate Debt is Viable Approach for Select HFAs
Selected Recent Housing Issues
Treasury and Housing Bond Rates*
* Source: RBC CM and Bloomberg (for 10 Year Treasury Yields)
Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC

6. Refunding Opportunities
HFAs can undertake current refundings of tax exempt, private activity mortgage revenue bonds
A refunding can create excess spread
1.125% of spread is permitted on single family MRB issues
A refunding will lower the bond yield, while the loan characteristics of the transferred mortgage pool is remains largely unchanged
Excess spread can be utilized to subsidize new mortgage loan productions at attractive lending rates
Subsidized new money issuance at the time of the refunding
0% pool
Economics of a refunding can be enhanced with over-collateralization or use of structure and/or variable rate debt
2006 saw record municipal single family issuance – refunding opportunities exist as we approach 10 year optional redemption dates
Single Family Municipal Bond Issuance ($MM)
Source: Thomson Reuters
Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC

7. Summary of Hypothetical Structure Options
Each structure has its pros and cons, and should be evaluated based upon program requirements and risk tolerances of each HFA.
Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC

8. Why Mortgage Revenue Bonds?
Add spread producing assets to HFA balance sheets
Some HFA balance sheets have decreased 50% or more in recent years
Reliable income stream realized over life of loans
HFAs can dual track mortgage loan production with TBA and other sales
Potential uncertainty of TBA market once Fed stops its purchases
Moody’s pointed out in late 2014 that if HFAs do not return to their previous business model of financing on- balance sheet mortgage loans to create a more predictable revenue stream to help support their operating costs, their portfolio performance could dip.  Moody's says such a dip could lead to a negative sector outlook
Single-Family Financing Essentials: MRBs I January 14, 2016
RBC Capital Markets, LLC