September 25, 1998



Analysis of the Impact of the Treasury/Government Sponsored Enterprises New Issue Bond Purchase Program - “But for NIBP”

This analysis documents the very positive impact that NIBP has had in expanding affordable housing opportunities for first-time homebuyers and lower income renters as well as stimulating economic revitalization. NIBP has created thousands of direct and indirect jobs in construction and real estate. In addition, NIBP has helped enhance the financial strength of local HFAs allowing them to preserve their local lending infrastructure on the single-family side, and for many on the multifamily side, to bolster their balance sheets enabling them to subsidize additional affordable housing.

Background

On October 19, 2009 the Obama Administration announced its “HFA Initiative,” whereby the U.S. Department of Treasury committed to purchase $15.3 billion in tax-exempt single-family and multifamily housing bonds issued by local and state Housing Finance Agencies (HFAs). The bonds have been or will be, bundled into securities by Fannie Mae and Freddie Mac and sold to Treasury. Under the program, HFAs were able to borrow at the Treasury’s cost of funds, which, with the addition of fees to compensate the participants in the bond transaction, produced an interest rate that was significantly below convention interest rates and allowed the HFAs to be competitive in the marketplace. HFAs have largely been unable to sell their bonds in the capital markets since 2008 because conventional interest rates have been so low and without NIBP that would continue to be the case. Because the capital markets for housing bonds has not returned a Round 2 of NIBP is highly warranted.

As Treasury has indicated based on data compiled by its financial advisor State Street Global Advisors, NIBP to date has already financed 100,000 home purchases by first time homebuyers and resulted in the creation or preservation of 24,000 affordable rental units.

EXECUTIVE SUMMARY

Based on the following analysis and the attached tables and Exhibits, it is conservative to estimate that NIBP had the following impacts:

1. Rate Benefit

a. The net benefit in interest rates from NIBP varied depending on when bonds were issued but was well over 1% compared to an all-market tax-exempt issue.

b. This net benefit fluctuated, as intended, depending on the spread between Treasury and tax-exempt bond yields. That differential is now at its widest since early 2009, indicating how crucially important it is to provide a new round of NIBP.

2. Single-Family without NIBP

a. HFAs would have issued virtually no single-family bonds without NIBP, since rates would have been well above the market and the negative arbitrage that would have been produced was prohibitive.

b. For borrowers – without the combination of lower rates on HFA mortgages, limits on lender charges, downpayment assistance and homebuyer counseling – we conservatively estimate less than 10% of the 100,000 first time homebuyers who utilized NIBP would have otherwise been able to afford the home in which they now live.

c. This means that NIBP generated more than $10 billion of home purchases by first-time buyers that would not otherwise have occurred. Purchases by first time buyers are particularly important in helping stabilize the bottom end of soft housing markets, in reducing inventories and in enabling existing homeowners to move up. They are thus critical for stabilizing prices.

3. Multifamily without NIBP

a. Without NIBP, tax credit projects would have required at least 10% and likely 15% more public subsidy funds in order to be feasible.

b. The benefit of NIBP to these projects was of the same magnitude as an increase in tax credit pricing from 70 cents to 90 cents (e.g. the very reason Congress instituted the Tax Credit Assistance Program).

c. Given limited subsidy sources, at least one quarter of the 24,000 units financed by NIBP would not have proceeded.

4. Impact of NIBP in Current Housing and Financial Market

a. NIBP was able to have these impacts because the yields, as intended, provided a positive spread to the Treasury and were approximately 85% to 90% of GNMA yields. Providing NIBP Program Bond rates below GNMA yields were the key to making both single-family and multifamily NIBP successful.

b. The same conditions that led to the President’s support for NIBP in 2009 are equally present today:

i. an extremely weak economy,

ii. recovery efforts undermined by the continuing extraordinary weakness in more than half of all housing markets,

iii. need to stabilize home prices and stimulate homebuying, and

iv. tax-exempt bond rates above Treasury rates, making publicly sold tax-exempt bonds for housing very difficult or impossible without NIBP.

c. Tax-exempt rates are the highest percentage of treasuries in 3 years with 10 year MMD at times this December at 112% of 10 year treasuries and 30 year MMD at 130% of 30 year treasuries, far higher than at any time since NIBP was created. Exhibit I shows this dramatically. By comparison, from Jan. 2006 through the summer of 2008, the 10 year MMD averaged 84% of 10 year treasuries. NIBP is precisely valuable when this imbalance occurs.

d. With the ongoing European debt crisis creating a continuing international flight to treasuries (and to federally-backed debt such as GNMA’s), NIBP is needed more in 2012 than ever before.

5. NIBP Terms and Impacts of a New Round

a. This analysis was based on the NIBP terms utilized during the program in 2010 and 2011 which led to the use of more than $11 billion of Program Bonds and more than $15 billion of overall lending by establishing Program Bond rates at levels of approximately 85% of GNMA yields.

b. We understand that for the limited number of issuers who were not able to fully utilize their allocations, Treasury [in the recently announced extension of NIBP 1] needed to establish higher rates for funds being released in the 3rd year of such escrows to make up for the extension of Escrow Bonds for 2+ years at short-term rates. Since a new round of NIBP would not involve any such past short-term investments from several years ago, such changes would not and should not apply.

c. Thus the impacts of a new round of NIBP on the same terms as the initial round would have the same relationship to GNMA market yields and can be expected to have similar benefits for borrowers and the economy as the initial round of NIBP in 2010 and 2011.

d. In addition, given the two years of successful utilization and familiarity with this program and how to effectively leverage it, HFAs are likely to be much faster and more efficient in utilizing such funds.

e. Finally, Exhibit V shows graphically what difference NIBP has made in the rates HFAs can offer, and how – without a second round – tax-exempt all-market issues are at rates far above GNMA yields and HFAs will not be able to continue playing a key role in efforts at housing recovery.

SINGLE-FAMILY

For single-family housing, very little of this activity would have occurred without NIBP. This is shown in several ways:

1. ‘But For’ Impact on Interest Rates. Table 1 below (and also Exhibit II) shows a detailed analysis of the interest rate impact for a major single-family issuer. The table shows the rate impact on each of 5 financings from September 2010 through November 2011, which is the period when almost all NIBP issues nationally were priced. Since the NIBP rates on any given date for all issuers were based on the same 10 year Treasury and since publicly sold tax-exempt bond yields on any given date are virtually the same for all HFAs in the same rating category, the difference between these – the net benefit of NIBP – would generally be the same for all HFAs.

a. Net Benefit of 1%+. Table 1 measures the net benefit of NIBP at each pricing as the difference between the yield that would have been required for an all-publicly sold market issue versus the yield on a 40% market / 60% Program Bond issue.[1] This differential fluctuated as spreads between treasuries and municipal bonds fluctuated. Historically, tax exempt yields before the financial crisis had been about 85% of treasuries.

• When those spreads were relatively tight, as in Sept 2010 and June 2011, the net benefit of NIBP was about 0.95% in annual interest rate.

• When spreads are wider because of an international flight to quality, as in August and again in December due to the European financial crisis, the NIBP net benefit was much greater, about 1.51%. Perhaps most important, this is the case today going into 2012.

• The average benefit in these five pricings was about 1.25%.

Table 1. Minnesota Housing Single-Family

|Pricing Date |September 2010 |March 2011 |June 2011 |August 2011 |November 2011 |

|NIBP Yield for AAA Program Bonds |3.01% |3.55% |2.58% |2.32% | |

|Yield on All-Market Bond Issue |5.37% |5.19% |4.91% |4.75% | |

|Net Benefit |2.36% |1.64% |2.33% |2.43% |2.19% |

|Comparison: 10 Year MMD as % of 10 |89.5% |87.4% |98.7% |112.4% |97.2% |

|Year Treasury | | | | | |

We then analyzed the New York City Housing Development Corporation, which is AA-rated and was by far the largest multifamily user of NIBP. For its five issuances, the benefit of 100% Program Bonds versus a 100% market issue averaged 1.54%.

Table 4. NYCHA Multifamily (AA-Rate)

|Pricing Date |June 2010 |December 2010 |April 2011 |June 2011 |December 2011 |

|Pricing Date |11/30/10 |6/20/11 |9/7/11 |12/3/11 | |

|Release Date |12/6/10 |6/28/11 |9/15/11 |12/16/11 | |

| | | | | | |

|Program Bonds |85,280,000 |50,170,000 |42,830,000 |15,940,000 |194,220,000 |

|Market Bonds |69,955,000 |17,775,000 |31,120,000 |0 |118,850,000 |

|Total Bonds |155,235,000 |67,945,000 |73,950,000 |15,940,000 |313,070,000 |

| | | | | | |

|Program Bond Rate |3.01% |3.55% |2.58% |2.32% | |

|Overall Bond Yield |3.65% |3.65% |3.24% |2.31% | |

|Est. All Market Bond Issue Overall Yield |5.37% |5.19% |4.91% |4.75% | |

|Est. Yield Reduction Due to NIBP |2.36% |1.64% |2.33% |2.43% |Avg. 2.19% |

|(All Market – Program Bond Rate) | | | | | |

| | | | | | |

|Number of Projects Financed |11 |4 |3 |1 |19 |

|Number of Units Financed |1,431 |505 |903 |103 |2,942 |

Exhibit IV. NYCHDC Multifamily

Exhibit V

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[1] Minnesota chose to use some of this benefit to include even more market bonds in certain issues, thus spreading this benefit out across more loans.

[2] Many multifamily issuers (like Minnesota in the single-family example) chose to use some of this benefit to assist more projects, spreading it out by including various amounts of market bonds in each issue. The NIBP benefit however was the differential it allowed the HFA to utilize.

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Officers

President

Jim Shaw

Austin, Texas

Capital Area Housing Finance Corporation

Vice President

Ernestine Garey

Atlanta, Georgia

Development Authority

Treasurer

Paula Sampson

Fairfax County, Virginia

Department of Housing & Community Development

Secretary

Marc Jahr

New York, New York

Housing Development Corporation

Past President

Patricia Braynon

Miami-Dade County, Florida

Housing Finance Authority

Directors

Vivian Benjamin

Montgomery County, Maryland

Housing Opportunities Commission

Tom Cummings

Pittsburgh, Pennsylvania

Urban Redevelopment Authority

Doug Guthrie

Los Angeles, California

Department of Housing

Olson Lee

San Francisco, California

Mayor’s Office of Housing

W.D. Morris

Orange County, Florida

Housing Finance Authority

Harry Sewell

Washington, DC

Housing Finance Agency

Mtumishi St. Julien

New Orleans, Louisiana

Finance Authority

Mark Ulfers

Dakota County, Minnesota

Community Development Agency

Ron Williams

Houston, Texas

Southeast Texas Housing Finance Corporation

Staff

John C. Murphy

Executive Director

Heather Williams

Senior Associate

2025 M Street, N.W., Suite 800

Washington, DC 20036-3309

Phone: (202) 367-1197

Fax: (202) 367-2197



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