Using NIBP and TCLP
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Using NIBP and TCLP May 19, 2011 Sarah Apsel, Domestic Finance Theo Polan, Fiscal Operations and Policy
description
Using NIBP and TCLP. Sarah Apsel, Domestic Finance Theo Polan, Fiscal Operations and Policy. May 19, 2011. Program Background: Historic Muni vs. Treasury Yields. - PowerPoint PPT Presentation
Transcript of Using NIBP and TCLP
Using NIBP and TCLP
May 19, 2011
Sarah Apsel, Domestic FinanceTheo Polan, Fiscal Operations and Policy
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Program Background:Historic Muni vs. Treasury Yields
•Spreads on municipal housing bonds widened to levels where the economics of the HFA business model could not produce a competitive mortgage rate
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%1/
7/20
04
7/7/
2004
1/7/
2005
7/7/
2005
1/7/
2006
7/7/
2006
1/7/
2007
7/7/
2007
1/7/
2008
7/7/
2008
1/7/
2009
7/7/
2009
30-year Muni AMT Housing Bond
10yr UST
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30yr Muni AMT Housing Bond Rate - 10yr UST Spread
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%1/
7/20
04
7/7/
2004
1/7/
2005
7/7/
2005
1/7/
2006
7/7/
2006
1/7/
2007
7/7/
2007
1/7/
2008
7/7/
2008
1/7/
2009
7/7/
2009
30yr Muni AMT Housing - 10yr UST%
2004-2010 avg
2004-2007 avg
HFA Initiative Concept proposed
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Program Background
Market Symptom
PotentialResult
Applicable Legislation
Program
Lack of long term financing
Unmet demand for HFA
mortgagesHERA NIBP
Lack of affordable
liquidity
Financial Strain on HFAs HERA TCLP
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NIBP Allocation Breakdown
•A total of $15.3 bln was allocated for usage under the New Issue Bond Program in December 2009
•Local HFA allocations totaled $2.0 bln, or 13.19% of total allocations
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
Allocation
$ B
ln
Total NIBPStateLocal
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NIBP Usage Breakdown
•As of April 30, 2011, HFAs had used a total of $6.19 bln, 41% of total NIBP allocated funds
•As of April 30, 2011, Local HFAs had used a total of $0.76 bln, 38% of Local allocated funds
•Local HFAs have drawn down 12% of total funds used to date
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Usage as of 4.30.11
% o
f R
esp
ecti
ve F
un
ds
State
Local
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Local HFA Usage Breakdown
•The majority of Local HFA issuance has been in MultiFamily NIBP
• Local HFAs have drawn down $224 mm in Single Family funding
• Local HFAs have drawn down $539 mm in MultiFamily funding
0%
10%
20%
30%
40%
50%
60%
Local Usage as of 4.30.11as % of SF and MF Allocations
%
Single Family
MultiFamily
8
NIBP Usage Pre- and Post- Program Changes
•Prior to the re-rate lock on September 1, 2010, HFAs drew down a total of 15% of allocated funds*.
•In the four months from the Program changes taking affect and December 31, 2010, HFAs drew down an additional 14% of funds from escrow.
•Local HFAs used 7% of funds prior to September 1, 2010*, and an additional 31% of funds in the eight months between Program changes taking effect and April 30, 2011.
*Figures include simultaneous issuance
Usage Pre- and Post- Program Modification
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Usage as of 8.31.10 Funds Drawn Downbetween 9.1.2010 -
12.31.2010
Usage as of 04.30.11
$ B
ln
State SF State MF
Local SF Local MF
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TCLP Update
3 HFAs have exited
Other reductions due to gradual redemption
Partial reissuance for switch to private liquidity now permitted
TCLP Obligations ($bns)
$6.0
$6.2
$6.4
$6.6
$6.8
$7.0
$7.2
$7.4
$7.6
$7.8
$8.0
$8.2
$8.4
Jan-
10
Feb-1
0
Mar
-10
Apr-1
0
May
-10
Jun-
10
Jul-1
0
Aug-1
0
Sep-1
0
Oct-10
Nov-1
0
Dec-1
0
Jan-
11
Feb-1
1
Mar
-11
SF
Total
10
Housing and Economic Recovery Act of 2008
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Housing and Economic Recovery Act of 2008
Limited to GSE Obligations
HERA MBS Purchase Authority
Expiration 12/31/2009
Subject to Credit Reform
t
revt
PVE
PVEPVES
cos
cos S > 0 : Cost to Gov
S < 0 : Profit to Gov
Positive Subsidy
Negative Subsidy
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Obligation Process
SF/MF Are separate Programs
Considers legality, policy implications,
cost/benefit
Approves credit subsidy calculations
Limits duration of purchase authority
New Issue Bond Program Changes
Period to draw funds from
escrow extended one
year
Each HFA/Indenture now allowed 6
total draws from escrow
Interest rate re-lock provided
to allow for bond issuance at competitive
rates
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New Issue Bond Program Rate Ceiling
HFA’s choice of day during ceiling lock
period:Dec 2-10, 2010
Date of Notice of Interest
Rate Conversion
7 days prior to release
Full Range
10 yr Tsy Minimum
+
Risk Premium
•All rates struck as of the close of business the previous business day
•HFAs took advantage of the relatively low 10 yr CMT at the beginning of the rate ceiling window, and locked in 2011 ceilings before rates trended higher
NIBP Rate Ceiling Window
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HFAs' 10 yr CMT "Ceilings" for 2011 Issuance
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
4.00
11/2
4/20
10
12/2
4/20
10
1/24
/201
1
2/24
/201
1
3/24
/201
1
4/24
/201
1
10 yr CMT
27 HFAs ceiling-locked at 2.97%
50 HFAs ceiling-locked at 2.95%
6 HFAs ceiling-locked at 3.01%
The 10yr CMT is currently at 3.32%
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HFA cost of capital under NIBP vs 10yr UST
•HFA CapCost = 0.6 x NIBP rate + 0.4 x Market Bond Execution
•NIBP rate = 10yr CMT + 60 bps (AAA credit premium)
•Dec 2009 – Aug 30, 2010 CMT = 3.37% (WAvg Locked 10yr CMT rate)
•Aug 31, 2010 – current CMT = fluctuates with market (re-rate lock)
•Market Bond Execution = 3.4% (Avg WAC of 75 market bond transactions)
•Market bond transaction dates: Dec 2009 to current (AAA-AA issuers)
•Avg WAC of market bond transactions was similar for: 1.) the entire time series; 2.) pre modification period; and 3.) post modification period
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40 HFA CapCost vs 10yr UST
CC MBS spread to 10yr UST
Introduction of re-rate lock
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Influence of re-rate lock and 10yr yields on NIBP cost of capital
•HFA relative cost of capital improved with introduction of re-rate lock
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
Dec
embe
r-09
Janu
ary-
10Fe
brua
ry-1
0M
arch
-10
April
-10
May
-10
June
-10
July
-10
Augu
st-1
0Se
ptem
ber-
10O
ctob
er-1
0N
ovem
ber-
10D
ecem
ber-
10Ja
nuar
y-11
Febr
uary
-11
Mar
ch-1
1Ap
ril-1
1M
ay-1
1
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5Diff HFA CapCost vs CC MBS
10 year USTIntroduction of re-rate lock
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HFA Full Spread MBS Rate vs FRE Weekly Primary Rate
•Doesn’t account for potential differences in borrower credit quality and GSE LLPAs (LLPA = loan level price adjustments)
•Full Spread HFA MBS = HFA Capital Cost + 112.5 bps
•HFA capital cost calculated using same method as previous chart
•Dec 2009- Aug 2010 = Wavg Locked 10yr CMT + Avg Mkt Bond WAC
•Aug 2010 – current = Market CMT rate + Avg Mkt Bond WAC
•FRE Weekly Primary Rate = weekly primary rate survey
3.50
4.00
4.50
5.00
5.50
6.00
Dec
embe
r-09
Janu
ary-
10Fe
brua
ry-1
0M
arch
-10
April
-10
May
-10
June
-10
July
-10
Augu
st-1
0Se
ptem
ber-
10O
ctob
er-1
0N
ovem
ber-
10D
ecem
ber-
10Ja
nuar
y-11
Febr
uary
-11
Mar
ch-1
1Ap
ril-1
1M
ay-1
1
FRE
Full Sprd HFA MBS
Introduction of re-rate lock
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Single Family Escrow Drawdown
HFAs may increase or decreases $ amt, after drawdown notice is given.
$
Time
Notification of release
21 days prior to release date*
Time
HFAs may NOT extend draw date (later), after drawdown notice is given.
$
*HFAs must submit notice of escrow withdrawal at least 21 days prior to release date
< 60 days
20
MultiFamily Escrow Drawdown
*HFAs must submit notice of escrow withdrawal at least 14 days prior to release date
$
Time
HFAs may NOT extend draw date (later), after drawdown notice is given.
$
HFAs may increase or decreases $ amt, after drawdown notice is given.
Time
Notification of release
14 days prior to release date*
< 120 days
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Avoid Blackout Dates
Holiday Dates not Available Memorial Day Friday, May 27Memorial Day Monday, May 30U.S. Independence Day Friday, July 1U.S. Independence Day Monday, July 4Labor Day Friday, September 2Labor Day Monday, September 5Columbus Day Monday, October 10Veterans Day Friday, November 11Day Before Thanksgiving Wednesday, November 24Thanksgiving Day Thursday, November 24Day After Thanksgiving Friday, November 25
Multifamily Closed Period Monday, December 19 - Friday, Dec 30
Christmas Friday, December 23
Christmas Day Monday, December 26, (Observed)
Single family Closed PeriodTuesday, December 27-Friday, December 30
All HFAs
M T W Th F
X X X X
X X X X
X X X X
T-Bill Investors
Thursdays only
