Times are changing, and so must we. In the past, to offer below-market rate loans, VHDA funded first-time homebuyer lending through tax-exempt bonds. That changed in mid-2008, when the interest rate relationship between the GSE (government-sponsored enterprise) mortgage-backed securities on which mortgage market rates are based and tax-exempt bonds changed. This shift, a result of investors preferring federally-guaranteed securities, negatively impacted the price competitiveness of tax-exempt bonds issued by VHDA and other housing finance agencies (HFAs), making them impractical.
Several events in 2009 changed our traditional way of doing business even more. First, new federal guidelines prohibited most non-governmental entities from providing down payment assistance in conjunction with FHA-insured mortgages. VHDA and other public purpose organizations were exempt from this prohibition. This enabled our FHA Plus loan program to remain viable, even at market rate interest, since loans with down payment assistance were no longer available elsewhere. (While this approach provides adequate capital to originate a meaningful number of FHA Plus loans, it does so only on a break-even basis.)
Also in 2009, the U.S. Treasury introduced a temporary program to support mortgage revenue bond (MRB) issuance by HFAs. Under this program, the Treasury is buying certain tax-exempt MRBs at below-market rates, enabling HFAs to again offer competitive loans. Participating in this program will enable us to sell $800 million in tax-exempt bonds to finance VHDA’s first-time homebuyer lending through February 2011.
We now face the challenge of how to maintain financially viable and marketable first-time homebuyer loans after February 2011. If the relationship between GSE mortgage-backed securities and tax-exempt bonds doesn’t return to the point where VHDA can profitably offer below-market interest rate loans, we will need to look for other interim options.
Each will be evaluated with the goals of:
- Maintaining the viability of our core first-time homebuyer loans.
- Earning net revenues to support our long-term mission and to help fund our REACH Virginia programs.
- Effectively using tax-exempt bond allocation.
- Understanding and managing loan risk.
VHDA’s Finance staff, in partnership with our Single Family Development division, will research options, develop an action plan prior to February 2011 and implement that plan in the second half of FY11.
As we move forward, we’re keeping our attitude positive by recognizing that, as a wise philosopher once said, “continuity gives us roots; change gives us branches, letting us stretch and grow and reach new heights.”
Susan Dewey
Executive Director
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