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)
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HFA Aggregate Equity ($ Billions)
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HFA Aggregate Parity Ratios (Equity as a % of Bonds)
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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
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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
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