HFA’s and Capital Markets

Housing and Finance Agencies have great opportunities in how loan programs are designed, and it’s time to ask your Leadership Team – “Are we using loan programs and our investor contacts to promote homeownership to the maximum level?”  Depending on the philosophy of the HFA and its’ Board of Director’s the answer definitely varies.  There are HFA’s who have expanded their homeownership reach by looking for the best loan program, and loan pricing by building loan programs that are specific to MRB Tax Exempt Financing as well as being able to take advantage of loan program options and pricing levels in the Capital Markets.

This is where an HFA that has built out these execution options for its loan products – FHA, VA, RD, and Conventional Conforming can expand on how it serves its homeownership community.   The challenge in getting to this level of expertise can be overwhelming and is also driven by direction from State Government, its Board of Directors, and other specific business structures that impact each HFA.   There is not one business model that is utilized for all HFA’s, which is where the challenge exists.

What is the competitive advantage that an HFA has, over an Independent Mortgage Banker, Community Bank, or Credit Union?   The answer is easy - lenders who are not HFA’s do not historically participate in the Mortgage Revenue Bond model, utilize or have access to the features of down payment assistance provided for by HUD, Fannie Mae and Freddie Mac, and typically do not have relationships under a Master Servicer Model.  This is where HFA’s have a competitive factor in how they design their strategy for effective and successful loan programs that serve the mission of homeownership.   

I am not convinced that the larger production volume HFAs are the only participants who can participate in this broader scope Capital Market structure.   Having a vision that is led at the Executive Director level, having the right people, and then developing a Strategy Roadmap with key measurables in where this change begins.   These options are not based upon loan production volume as the sole measure of success.

Why do I have this opinion?  Because I consulted with an HFA that had “change” on their Strategy Roadmap and was successful in guiding their move to a Mortgage-Backed Security, Master Servicer model.   The timing for this change was critical, as within one year of launch their production volume nearly doubled.   Adjustment to the MBS model allowed for better operational efficiency, reduced risk throughout the life of loan cycle, and provided for an MBS which is an attractive security for delivery under the MRB structure.

Where does an HFA start?   Become knowledgeable about the various business models that exist.   This knowledge creates the base foundation to then evaluate what the right strategy is along with a benefit / cost analysis.  This foundation should be built based upon the various Capital Market options, which are:

• Mortgage Revenue Bond Whole Loan

• Mortgage Revenue Bond, Mortgage-Backed Security structure via Ginnie Mae, Fannie Mae, or Freddie Mac

• To-Be-Announced, MBS structure via Ginnie Mae, Fannie Mae and/or Freddie Mac

• Whole Loan via Fannie Mae and/or Freddie Mac

• Approved with Ginnie Mae, Fannie Mae, and Freddie Mac:

  • In Housing Servicing Department

  • Loan Servicing outsourced to a Sub-Servicer, Master Servicer Oversight

• Not approved with Ginnie Mae, Fannie Mae, and Freddie Mac. 

  • Utilization of Master Servicer for loan acquisition, purchase of Mortgage Servicing Rights, issuance and exchange of MBS.

The other part of this process is to clearly understand the risks and benefits of each of the execution models.   Don’t make decisions without knowing the whole picture of what your options are.  Hire a consultant who knows how to guide you through this process who has been in your shoes and has had to find the best solution.

I often reflect on the years when I would go to the Mortgage Bankers Associations Secondary Marketing Conferences, trying to learn what were the best loan programs, best priced investor, and servicing partner.   In reflecting upon that time, it was working through a maze to then arrive upon the best outcome.  It took time, patience, and determination to run Capital Markets with ten investor options, relationships with Ginnie Mae, Fannie Mae and Freddie Mac, and capitalize on the best pricing execution strategy for both the loan and the servicing asset.  Production volume over approximately ten years went from $1 billion to nearly $4 billion – so the growing pains and change element faced the organization every day.  Does this story sound familiar?

As I close out this BLOG, I encourage you to ask the question -– “Are we using loan programs and our investor contacts to promote homeownership to the maximum level?”   Then reach out for a conversation about what your Homeownership Strategy be – my door is open.

The team at BlackFin that has specific and diverse Capital Markets experience has nearly 80 years of lending experience – we look forward to sharing that knowledge with you.  

Luana Slettedahl is a Partner with BlackFin Group in the Mortgage Strategy Practice. Luana brings forty years of diversified experience in Capital Markets, Mortgage Servicing Rights, GSE and Ginnie Mae relationship management and Seller / Servicer requirements.  Her understanding of how to successfully do business with the GSE’s and Ginnie Mae, has made her a significant asset to her clients. For more information contact info@blackfin-group.com