National Association of Local Housing Finance Agencies Austin Texas, April 27, 2012 Programs to...

National Association of Local Housing Finance Agencies

Austin Texas, April 27, 2012

Programs to Assist Homebuyers

Presentation to:

National Association of Local Housing Finance AgenciesAnnual ConferenceApril 25 – 28, 2012

Austin, Texas



Welcome to Texas!Local HFC’s have led the nation in supporting housing!

Local Issuers have:• Issued Bonds under NIBP (New Issue Bond Program purchase

thru Fannie/ Freddie/ Treasury).• Issued MCC’s.• Provided down payment assistance.• Utilized funds under Housing & Economic Recovery Act (HERA)• Benefited from provisions of Gulf Opportunity Zone Act.• Supported housing through a period of significant challenges.• Enjoyed (relatively) stable home prices and growth in

employment.

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Advantages of MCC

1. An MCC is a direct companion to a mortgage loan, saving 10-50% of the interest on the loan.

2. Instead of giving tax benefits to a bond investor in exchange for a reduced bond and mortgage rate, MCCs give the benefit directly to home buyers.

3. Works now, if bond programs are not practical.

4. Provides savings to reduce monthly housing cost.

5. Is a companion to any loan available, except a bond loan.

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Advantages of MCC

6. Allows borrowers to get the best mortgage rate, then save 35% of the interest as a federal income tax credit.

7. Can help families qualify for their loan, and the significant savings help them stay in the home by receiving $167/month savings.

8. MCCs are easy to use and benefit to the borrower. Lenders appreciate the ease of use of MCCs.

9. MCC can be combined with down payment assistance, TBA Program, second mortgage or other assistance program to help monthly affordability and cash to close.

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Advantages of Bonds1. Local Issuers have historically structured and priced

bonds in order to provide the lowest possible mortgage rate.

2. Bond loans have often provided down payment assistance grants.

3. Bond loans have sometimes been combined with second mortgages to fund closing costs.

4. Bond loans work regardless of borrowers’ tax situation, and provide ongoing fixed interest rate without changing borrowers’ tax treatment.

5. Bond Programs can be readily marketed, relying on lower mortgage rate.

6. Bond programs can benefit issuers with accumulation of assets or release of program fees and cash flow.

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Bond Loan/MCC Comparison(based on a $120,000 loan and 35% MCC)

Rate Comparison Open Market Loan Bond LoanLoan + MCC

Interest Rate 4.25% 3.75% 4.25%MCC Savings 1.50%Net Cost 4.25% 3.75% 2.75%

Payment Comparison Open Market Loan Bond LoanLoan + MCC

Monthly Payments on a $120,000 Loan $590 $556 $590

MCC Savings TO HOMEOWNER $0 $0 ($148)

Monthly Cost $590 $556 $442

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Austin Texas, April 27, 2012MCCs can save money

MCC Savings

Loan Amount $120,000

Rate 4.25%

Monthly Payment-Principal/Interest

590

Tax & Insurance 100

Total Monthly Payment 690

First Year Interest $5,100

MCC Dollar-for-Dollar Tax Credit @ 35%=

$1,785

Savings continue each year so long as the borrower retains their mortgage and occupies the home as a primary residence. Borrower can receive benefit as an annual tax refund, or receive benefit monthly through reduced withholding, by filing a new W-4.

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Mortgage Interest Deduction on remaining interest: $3,315



MCC taken: Annually or Monthly

Total income $70,000 $70,000

Tax amount 10,000 10,000

MCC Tax Credit @ 35% 1,785 1,785

Withholding 8,000 6,215*

Refund 1,785 -

Initial Cost = 1% of the loan amount plus $150:

$1,000 + $150 = $1,150

*Adjust federal withholding to increase take-home $148/month

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Why Consider Assisting Borrowers Now?

1. The need for housing and for homebuyer assistance is greater than ever.

2. MCC Programs are available in all market

conditions.

3. Mortgage Revenue Bond Programs are not currently practical.

4. TBA* or other programs may provide down payment assistance.

5. Tightening credit market makes it difficult for homebuyers to purchase a home - a bond or MCC program allows issuers to help buyers in a VERY tough market.

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Why Consider Assisting Borrowers Now?

6. Programs reduce the cost of homeownership for qualified buyers, and lenders can use the benefit to help qualify borrowers for the mortgage loan.

7. Programs appeal to lenders because they can continue to originate loans, often using their own products and even retaining servicing.

8. MCCs will keep lenders motivated to work with the issuer, and stay involved until it is feasible to complete a bond issue.

9. Program using committed delivery with periodic rate “To Be Announced” loan pricing.

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Low Interest Rates?A Great time for MCCs!

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