Managing Your HFA’s Financial Health in the Face of Uncertainty
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Transcript of Managing Your HFA’s Financial Health in the Face of Uncertainty
Managing Your HFA’s Financial Health in the Face of Uncertainty
cfX Incorporated588 Broadway, Suite 1203New York, NY 10012
NCSHA 2014 – Boston
October 21, 2014
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HFA Aggregate Balance Sheets ($ Billions)
2
HFA Aggregate Equity ($ Billions)
3
HFA Aggregate Parity Ratios (Equity as a % of Bonds)
4
Management Scenario Assumptions
• Adjustments from Rating Agency Assumptions
– SBPA fees
– Redemption frequency & ordering
– Operating distributions
– Prepayment recycling
– Universal cap and mortgage yield compliance
– Foreclosure frequency and loss severity
– Future debt issuance
• Prepayment Assumptions5
Historical Prepayments as % of PSA Model
6
Use the OTS Prepayment Model Instead of PSA
• Prepayments are derived from interest rates
• 3 Factors
– Age of the loan
– Seasonality – time of the year
– Refinance Factor
• Compare Market Loan Rates vs. Loan Coupon
– Higher Rate Loans Prepay > Lower Rate Loans
– Rates fall ---- Prepayments up
– Rates rise ---- Prepayments down
• % of OTS calibration still necessary7
Projected Prepayments 6% Loan Using OTS Model
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Projected Prepayments 4% Loan Using OTS Model
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Historical Prepayments as % of PSA Model
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Historical Prepayments as % of OTS Model
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WSJ Surveys - Average Predicted 10 Year UST Rates
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WSJ Surveys - Average Predicted 10 Year UST Rates
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WSJ Surveys - Average Predicted 10 Year UST Rates
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WSJ Surveys - Average Predicted 10 Year UST Rates
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WSJ Surveys - Average Predicted 10 Year UST Rates
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Management Cash Flow Interest Rate Scenarios
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Management Cash Flow Scenarios
• Interest Rate Scenarios
– Current Rates
– Ramp Up +100, +200, +300, +400bp
– Ramp Down -100, -200, -300, -400bp
– Sometime Bracket with Rating Agency Rates
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Management Cash Flow Scenarios
• Debt Structure Evaluation
– 3 vs. 4 vs. 5 Year PACs
– PACs vs. Cross-Calls/Recycling
– Variable/Swaps/Unhedged
• Economic Refunding Evaluation
– Future Savings vs. Upfront Costs
– PV Savings Before and After Tax Compliance
• Future Operating Distributions
– Sensitivity to future interest rates
– Budgeting/Planning19
Management Cash Flow Scenarios
• Validate Continuous Lending Programs
– Impact of “Below Full Spread” Lending
– Model captures cross-call & recycling opportunities (Cross-call ~ 27bps)
– Leverage Accumulated Equity/Excess Spread
– Manage & Sustain Size of MRB Balance Sheet
– Maintain Market Position
• Program Development
– Cost/Benefit of Multiple Rate Programs
– Cost/Benefit of Changes in Lender Comp.20
Management Cash Flow Scenarios
• Final Thoughts
– HFAs have had > 40 years of success
– Will ballooning equity + shrinking balance sheets expose HFAs to raids ?
– Liabilities might be same as 2002 but scenario modeling capabilities are way up
– Management Scenario Cash Flows can be an effective tool for HFA Managers
– Model results from Saturday night
» Not Pass Interference !!!21