SINGLE FAMILY MAKING PROGRAMS MORE SUCCESSFUL

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1 SINGLE FAMILY MAKING PROGRAMS MORE SUCCESSFUL July 11, 2013 Nicholas Hoffer Vice President (727)

2 DISCLAIMER The information contained herein is solely intended to facilitate discussion of potentially applicable financing applications and is not intended to be a specific buy/sell recommendation, nor is it an official confirmation of terms. Any terms discussed herein are preliminary until confirmed in a definitive written agreement. While we believe that the outlined financial structure or marketing strategy is the best approach under the current market conditions, the market conditions at the time any proposed transaction is structured or sold may be different, which may require a different approach. The analysis or information presented herein is based upon hypothetical projections and/or past performance that have certain limitations. No representation is made that it is accurate or complete or that any results indicated will be achieved. In no way is past performance indicative of future results. Changes to any prices, levels, or assumptions contained herein may have a material impact on results. Any estimates or assumptions contained herein represent our best judgment as of the date indicated and are subject to change without notice. Examples are merely representative and are not meant to be all-inclusive. Raymond James shall have no liability, contingent or otherwise, to the recipient hereof or to any third party, or any responsibility whatsoever, for the accuracy, correctness, timeliness, reliability or completeness of the data or formulae provided herein or for the performance of or any other aspect of the materials, structures and strategies presented herein. Raymond James is neither acting as your financial advisor nor Municipal Advisor (as defined in Section 15B of the Exchange Act of 1934, as amended), and expressly disclaims any fiduciary duty to you in connection with the subject matter of this Presentation. Municipal Securities Rulemaking Board ( MSRB ) Rule G-17 requires that we make the following disclosure to you at the earliest stages of our relationship, as underwriter, with respect to an issue of municipal securities: the underwriter s primary role is to purchase securities with a view to distribution in an arm s-length commercial transaction with the issuer and it has financial and other interests that differ from those of the issuer. Raymond James does not provide accounting, tax or legal advice; however, you should be aware that any proposed transaction could have accounting, tax, legal or other implications that should be discussed with your advisors and/or legal counsel. Raymond James and affiliates, and officers, directors and employees thereof, including individuals who may be involved in the preparation or presentation of this material, may from time to time have positions in, and buy or sell, the securities, derivatives (including options) or other financial products of entities mentioned herein. In addition, Raymond James or affiliates thereof may have served as an underwriter or placement agent with respect to a public or private offering of securities by one or more of the entities referenced herein. This Presentation is not a binding commitment, obligation, or undertaking of Raymond James. No obligation or liability with respect to any issuance or purchase of any Bonds or other securities described herein shall exist, nor shall any representations be deemed made, nor any reliance on any communications regarding the subject matter hereof be reasonable or justified unless and until (1) all necessary Raymond James, rating agency or other third party approvals, as applicable, shall have been obtained, including, without limitation, any required Raymond James senior management and credit committee approvals, (2) all of the terms and conditions of the documents pertaining to the subject transaction are agreed to by the parties thereto as evidenced by the execution and delivery of all such documents by all such parties, and (3) all conditions hereafter established by Raymond James for closing of the transaction have been satisfied in our sole discretion. Until execution and delivery of all such definitive agreements, all parties shall have the absolute right to amend this Presentation and/or terminate all negotiations for any reason without liability therefor. The information presented herein may include references to swaps or other derivative products and associated risks. This Presentation does not include a complete explanation of interest rate swaps or other derivative products or their associated risks. Before any decision with respect to the use of swaps or other derivative products can be made, you should receive a complete presentation that details such associated risks, which may be significant. You should not enter into any transaction involving swaps or other derivative products unless you fully understand all such risks and have independently determined that such transaction is appropriate for you. 2

3 MAKING PROGRAMS MORE SUCCESSFUL 1 Mortgage Credit Certificates 2 Regional Approach 3

4 MORTGAGE CREDIT CERTIFICATES What is a Mortgage Credit Certificate? A Mortgage Credit Certificate ( MCC ) reduces the amount of income tax a homeowner pays by providing an annual federal income tax credit, not a tax deduction, that is in effect for the life of the loan, as long as the homeowner occupies the home as a principal residence. The value of the MCC is applied directly to the homeowner s tax liability. The amount of credit may not exceed a homeowner s total tax liability for a given year, though excess credit may be carried forward for up to three subsequent tax years. Using an MCC reduces the amount of home mortgage interest that may be taken as a deduction on the homeowner s tax return. Homeowners may adjust their W-4 withholding to account for the tax-credit benefit, thus providing a higher monthly net income for loan qualifying. HFA Considerations Can be combined with TBA-based programs; cannot be used with tax-exempt bond programs. HFAs must exchange private activity volume cap for MCC allocation. 4

5 BENEFIT OF USING MCCs Example of Homeowner Benefit of Using MCCs 25% Cap "trade in" for MCCs (1) 6,250, MCC Applied Credit % (2) = 25% Maximum MCCs (Cap / Applied Credit %) $25,000,000 Average Loan Size 175,000 Mortgage Rate 4.500% 1st Year Interest 7, Homebuyer MCC Reduction in Taxes (max $2k) (MCC% x Interest) 1, Reduction in Schedule A Deduction Assuming 29% Tax Bracket (3) Net Annual Additional $ to Homebuyer 1, Net Monthly Additional $ to Homebuyer Net Mortgage Rate after Subsidy (4) 3.701% (1) Mandatory conversion rate. Savings of 80 bps! (2) HFA may choose minimum of 10% to maximum of 50% (3) Homebuyer must reduce IRS Schedule A mortgage interest deduction amount by amount of MCC claimed. (4) Rate is computed as an "internal rate of return" based on reduction in value of MCC over 360 month term of mortgage. 5

6 REGIONAL APPROACH Independent Fully Integrated Multi-Jurisdictional Advantages Increased Target Market increased borrower mobility, additional lender resources, flexibility for realtors aware of the program to work across their entire network. Economies of Scale costs can be spread across more potential homebuyers and resulting HFA benefit, reduced transactional costs, increased availability of resources. Standardized Documentation lender agreements, servicing agreement, and program parameters can be standardized to make the lender experience better. Disadvantages Reduced Sovereignty some decisions may be delegated to another HFA. Coordination coordination amongst HFAs and their professional teams can be difficult. Allocation of Resources since each HFA is expected to contribute something to the program, allocation of those resources across the entire jurisdiction can be complicated. 6

7 REGIONAL APPROACH Independent Fully Integrated Multi-Jurisdictional Programmatic Consistency Structuring independent programs (e.g., products offered, mortgage rates, DPA, loan delivery timelines, etc.) to create similarities between neighboring or nearby programs sponsored by other HFAs. HFA Partnerships Multiple HFAs creating a partnership to offer the same product(s), with a single set of documents governing the product(s) offered: including first mortgage loans, DPA, and MCCs. Requires an interlocal agreement between HFAs for the common product(s). Decisions can be made by mutual agreement or delegated to a single partner. Each HFA retains full control of any product not offered through the partnership. Standardized Documentation Negotiating similar documents (e.g., origination agreement or lender agreement, administration agreement, servicing agreement, etc.) and selecting common professionals to expedite review by lenders of program parameters and making ongoing operation of the program more efficient. Multi-Jurisdictional Program Multiple HFAs participating in a joint program to offer all the same products (e.g., first mortgage loans, DPA, MCCs) with a single set of documents. Requires a broad interlocal agreement between HFAs. Typically, decisions are delegated to a lead HFA, with participating HFAs contributing volume cap and other resources. Participating HFAs typically don t have any explicit control over any product offered in their jurisdiction. 7