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Managing Your HFA’s Financial Health in the Face of Uncertainty

Managing Your HFA’s Financial Health in the Face of Uncertainty. NCSHA 2014 – Boston October 21, 2014. cfX Incorporated 588 Broadway, Suite 1203 New York, NY 10012. HFA Aggregate Balance Sheets ($ Billions). HFA Aggregate Equity ($ Billions).

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Managing Your HFA’s Financial Health in the Face of Uncertainty

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  1. Managing Your HFA’s Financial Health in the Face of Uncertainty NCSHA 2014 – Boston October 21, 2014 cfX Incorporated 588 Broadway, Suite 1203 New York, NY 10012

  2. HFA Aggregate Balance Sheets ($ Billions)

  3. HFA Aggregate Equity ($ Billions)

  4. HFA Aggregate Parity Ratios (Equity as a % of Bonds)

  5. 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 Assumptions

  6. Historical Prepayments as % of PSA Model

  7. 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 necessary

  8. Projected Prepayments 6% Loan Using OTS Model

  9. Projected Prepayments 4% Loan Using OTS Model

  10. Historical Prepayments as % of PSA Model

  11. Historical Prepayments as % of OTS Model

  12. WSJ Surveys - Average Predicted 10 Year UST Rates

  13. WSJ Surveys - Average Predicted 10 Year UST Rates

  14. WSJ Surveys - Average Predicted 10 Year UST Rates

  15. WSJ Surveys - Average Predicted 10 Year UST Rates

  16. WSJ Surveys - Average Predicted 10 Year UST Rates

  17. Management Cash Flow Interest Rate Scenarios

  18. 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

  19. 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/Planning

  20. 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.

  21. 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 !!!

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