Travis County Commissioners Court
November 17, 2009,
Housing Finance Corporation
>> housing finance corporation.
good afternoon, let's call to order the Travis County housing finance corporation.
item no.
1 is to consider and take appropriate action on request to authorize an invoice from frameworks cdc.
>> good afternoon, my name is mike gonzalez, senior financial analyst for the corporation.
this item is to approve an invoice from frameworks, who currently have a $50,000 grant agreement with frameworks foreclosure prevention counseling services.
it is a 12-month period grant from April 28th, 2009, to April 28th, 2010.
we did pay one invoice, which was $20,000, for full contract execution.
this invoice presented today is for the assistance of 56 households, staff did provide an on site visit and they did meet the requirements of the grant agreement.
staff recommends approval.
>> move approval.
>> second.
>> do we know what the results of those visits will be?
in other words, you know, you have some success stories and then again you have stories that may not be as successful.
so will there be some type of performance report that will be made available for the services that they render on the individuals that they are able to assist?
is that part of what maybe not today, but is that part of what we need to see I guess as we continue to go through this process?
>> they do provide specialized one on one service.
>> I understand.
>> they do report the final outcome.
a lot of these are still in transition.
you know, obviously --
>> it would be good to hear what those finalout comes are.
>> I would be more than happy --
>> exactly.
i think we need to see that.
>> any more discussion?
all in favor?
that passes by unanimous vote.
item no.
2.
consider and take appropriate action on request to approve and execute a professional service contract for property inspection/appraisal services for various homebuyer assistance programs.
>> to implement our neighborhood stabilization program, we are required to do appraisals and inspections of the properties that they are about to -- that are about to receive assistance, we are required to follow procurement processes to actually obtain an appraiser and inspector.
we did follow the process.
we issued the r.f.p.
earlier this year.
we have one respondent.
the respondent is currently the one who have participated in our home program, they are pretty familiar with our requirement.
i did visit with the state and they said that it did -- it would meet their requirements for procurement on this.
we will only be billed for the services that we actually request and the rate is going to be 350 for property appraisal and $100 for property inspection.
and these costs are reimbursable under the nsp program.
questions --
>> what's the name of the firm?
>> sage reality consultants is the dba.
>> okay.
questions?
move approval.
>> second.
>> best to execute a contract with them, we use them as need and we pay as we get the services?
>> that's correct.
>> discussion?
all in favor?
that passes by unanimous vote.
item no.
3.
added item: consider and take appropriate action on signing and filing of commitment letter and payment of good faith deposit related to allocation of $23,567,088 by the united states treasury under the new issue bond program hfa initiative.
>> good afternoon, harvey Davis, with lad patillo, our financial advisor cliff blunt, our attorney and mark o'brien with morgan keegan and this initiative has really put us on a tight time line and -- and so apologize for not having the backup to you until today, but we didn't even -- weren't informed of this that we had received this allocation until last Friday.
and that we had to make a decision today about moving ahead.
the main decision that needs to be made by the board is whether to proceed with issuing these bonds and to -- in order to -- to take the next step, we will have to pay one-half of the application fee to the united states government, which is $25,000.
that fee is due next Monday and I would like to turn it over to mark to -- to review the program and the pros and the cons of -- of whether it's advisable to move ahead and after he finishes, then I'll give our staff recommendation.
>> okay.
>> thank you, harvey.
Commissioner, judge Biscoe, board members, mark o'brien with morgan committee egan company.
this was announced by the treasury last month.
all of these bonds have to be issued because this is under the hera act, legislation from '08 which expires December 31st.
all of these bonds have to be issued by December 31st, the end of this year.
that's the reason for our tight time frame the fact that the program just got announced.
so our apologies also for needing this good faith department, the amount of $25,000 payable to fanny may and fred demac.
what this provides provides, as you know you have done single revenue bond programs since the early 1980s, what you provided to low mod --
>> [indiscernible] authorized under federal law, section 143 of the tax code, you have been doing it for quite some time.
the market we last program we did was our $15.52007 million-a.
program went very well.
it's provided a nice revenue to the hfc, to the county, also help the a good number of home buyers.
we have done generally about a program every other year.
sometimes every year.
since the economic crisis, the end of last year, these programs have been almost impossible to implement.
no local hfc, no local housing
>> [indiscernible] across the country that done a deal since January of 2008 and very few state agencies have for various market disruption reasons.
that's the reason why the federal government announced this program.
it provides two wonderful things to you all, there's two main drawbacks.
the two things that it does for you is, number one, judge and Commissioners, it allows you, let's assume that we are doing a $15 million program with the Travis County, same size as your last one, it allows you, if you do this in December next month, to lock the bond rate on that money for the entire year.
in other words, no negative arbitrage, they are allowing you to lock this rate now and you don't have to deliver the mortgages until next year.
that's a huge benefit.
normally when we issue these, we don't have this luxury, so that's one benefit that they are providing.
the second benefit, Commissioners and board members, is that -- that they are allowing -- they are allowing you to -- to do this -- well, let me tell you the two drawbacks.
they will not allow us to sell premium bonds.
normally we sell bond premiums to public investor, at 103 cents on the dollar, the bond investor takes a slightly higher mortgage rate and the -- and the -- we use that 3% to provide a grant to the low mod first time home buyer families.
we cannot do this under this program.
the second drawback is that they are requiring fees, $50,000 when we close this deal in -- in December.
25,000 next week.
50,000 when we close.
another 25,000 estimated to their counsel.
so that's the drawbacks.
they are charging us more for this -- for this money for the privilege of doing this program with this interest rate lock.
>> is the total 75,000 or 50?
>> the total for -- to the good faith deposit is 25,000 next -- next week.
>> all right.
>> [multiple voices]
>> with an additional 25 at closing to make 50.
>> a total of 50.
>> that's right.
>> a total of 50 and then perhaps another 25 for their attorneys.
>> that's right.
all of that would get paid when, as, if we issue the bonds in December.
>> but on the interest rates, I am looking at the good -- well, the bad side that you just mentioned.
but on the good side --
>> yeah.
>> -- looking at the interest rate that you are going to lock down, what is that interest rate approximate ballpark now that you feel that we may be able to acquire to lock in on the low interest rate?
>> Commissioner Davis, that was the second good thing.
the first one is that we get to lock the rate.
the second one is about 100 basis point or 100% lower than we could do if we were to sell bonds in the market today.
that's the two advantages this program is providing us.
if we were to sell the bonds today, they have a set formula, we would be able to set that rate if the issuer decides to go forward in early December.
that rate today on the mortgage rate without down payment assistance, before any issue review, would be in the neighborhood of below 4.5%.
>> below.
>> 4.48, something like that.
>> conventional rates are -- are in the low five's on 30 year fixed rate mortgages.
>> but there would be an add on to that, that wouldn't be the final rate.
would that be the final?
>> if you weren't putting down payment assistance in the program, 4.48 would be the -- you normally put about 10 basis point, the low rate on the program would probably be 4.58 today.
low rate without down payment.
>> okay.
all right.
>> so those the two advantages, locking this rate and below market rate loan product.
the disadvantages, as we said, are the fact that you've got to pay these fees and we can't sell the bonds at a premium, so if -- if the issuer wants to put down payment assistance into this program, you would have to take out of your own resource to do it and get yourself paid back over time.
>> Commissioners, I would like to make that very clear that what mark was just saying was that the 485 or 448, 458 would be if we did a low rate program without any down payment assistance, in the past we've been able to raise the down payment assistance money by selling premium bonds which the treasury will not buy premium bonds from us under this program.
therefore the only way to give down payment assistance would be to utilize other funds that the corporation has that harvey has shown us that they have under block grant moneys that were going to be used for down payment assistance anyway, to use those and then you would charge a bit of a fee to get that back over time.
if the -- assuming the loans are originated, you wouldn't use that money unless people took out loans.
when they did, you would get the money back with a rate of return on top of it.
that would be another increment on top of the 485.
>> that would get you to about 495, somewhere in there.
so you probably should still be below five percent.
but the home buyer would get 495 mortgage rate with a 3% down payment grant.
that bit way is how you have traditionally done your programs over the last eight, 10 years.
slightly higher rate with the down payment assistance, I will say, Commissioner Davis, that -- assistance has been a key to your programs.
most people, we used to give them a choice, they all wented for the assisted loans, we generally say let's just make them all assisted loans.
i guess the three sort of decisions for the board are, number one, do you want to spend the $25,000 next week out of the housing finance corporation's unrestricted funds, non-refundable to continue on down this process.
you won't have approved a bond issue, done any of that yet, but you have put 25,000 at risk in order to continue on with this process.
the next economic decision would be does the board want to pay these costs to get this bond transaction closed in December.
which would be in the order of about $100,000, that's including the 50,000, judge, the 25,000, in other words, that's included, so you will have spent almost 100,000 to get this bond issue closed.
that's the next economic decision.
and if you put a program in place, do you also want to use housing finance corporation funds to provide down payment assistance for it?
once again, if you do this and if this program originates well, we hope and expect that it will because everyone assumes rates will rise, this will be a competitive mortgage predict, if you do this and you don't make the loans, that's lost money.
you've lost $100,000 because you haven't issued these -- you issue the bonds, but haven't had a successful program.
but you do it and if you put in the down payment assistance and the program originates well, you will get this stream of income coming back that we estimate, assuming the loans prepay at a normal rate, you will get all of your down payment assistance moneys back at about a 6% rate of return, assuming they prepay --
>> how long do you have to use the money?
in other words, there -- in other words, definitely are in the business -- aren't in the business of trying to lose money.
but what rule or what --
>> that's what you call the origination period that they allow you to make the loans.
>> December 31st of next year.
>> one year.
>> yeah, December 31st next year.
>> okay.
so it would have to be some pretty aggressiveness to make sure.
>> that's right.
that's why we've thought about this in terms of sizing, instead of having a $25 million program which is how much allocation.
>> right.
>> kind of 15 is what you have done in good years on your single time bond programs.
this would probably be a more attractive rate, to 15 million, that's why we were sizing it for the board's consideration at 15 rather than at 23 million.
>> are you done, Commissioner.
>> yes, judge, go ahead.
>> I have got two or three questions.
one is if we advance the dollars, do we pay the 100,000 at costs in closing?
>> that 100,000 at closing includes the 25 you will pay next week, plus the other -- the 50 that you would pay --
>> 50 plus 50.
>> that $100,000 number is an all-in number including everything.
>> okay.
why is it that we cannot cover that $100,000 that when we close on the bonds?
>> the short answer is that we can't cover that because they won't allow us to sell premium bonds.
if we could have sold premium bonds to them, wouldn't have paid their fees, we would have been flat, which is normally how we do these deals.
their fees are plus the amount that we have to pay in lag on the bonds, we would have paid that all from impeachment the reason that we are looking at writing a check for this program is because of the way the treasury set it up.
paying fees to them and their attorneys plus not being able to sell these bonds at a premium.
>> so we reimburse ourselves over the origination period, one year?
>> you get some of it back at that time.
but then it would come back over time from -- from your issuer fee on these loans.
so, in other words, it would come back over the next five, six, seven years as --
>> based on mortgage payments.
>> yeah.
we would get these repayments for as long as people are paying on mortgages.
>> yeah.
>> we get a monthly check.
>> make sure that I understand you, though.
to so the total up front investment by us would be $100,000.
>> no.
>> that --
>> no.
the total investment would be $100,000 at closing to issue the bonds, plus if we decide to have down payment assistance, then we would have to fund --
>> let's leave down payment assistance out.
>> okay.
>> but down payment assistance aside, are we talking about $100,000.
>> yes, that's about right at bond closing, correct.
>> now down payment assistance, the strategy is to be able to use cdbg dollars.
>> exactly.
>> no.
>> all right.
what's the strategy for down payment assistance?
>> I wish we could use the cdbg --
>> what's the source of funding?
>> our source of funding would be from the corporation's general fund.
>> how much?
>> to -- for a 3 percent down payment assistance, the statement is $450,000.
the estimate is $450,000.
>> but I thought I heard us in the hallway just discuss the possibility of using down payment assistance provided by h.u.d.
in the form of cdbg dollars?
>> judge, I was the one that said that.
i must have misheard what harvey and I were talking about on the phone the other day.
pardon me.
>> that 450,000 is a big investment.
big investment of --
>> [multiple voices]
>> right.
>> so ...
>> the -- the corporation has sufficient funds to make these expenditures, but we do have reserves that we have set up in our budget, reserves for the cdbg program and reserves for the nsp program because we do have to -- to fund various home closings before being reimbursed either by cdbg or the -- or the state on the nsp program.
and our -- our looking at this program, I think this is -- is a -- really a good opportunity that -- that we could do some good work and that -- that the chance of success is -- is very high.
because I think the -- you know, the danger in these programs is that you issue the bonds and mortgage rates go down and so you are stuck with a high mortgage rate and I think that -- I think the chance of that happening is very low because we are in such a low interest rate environment.
so I think the chances are more likely that interest rates will go up rather than down.
i do think that -- so our recommendation is to move ahead and spend the $25,000.
but during -- between now and next Tuesday, we will do a thorough financial analysis, and make sure that -- that other programs are -- our other programs are cdbg and our nsp and tenant based rental assistance program are not in any way endangered that we will have sufficient funds to do all of these programs.
>> all right.
>> two more questions and then I'm done.
>> okay.
>> so -- so what if we instead of basically approving the advance of the $25,000 good faith deposit, do the additional work and determine whether there's another way -- I mean, I don't know that I favor spending $550,000 up front.
that's 100,000 plus 450,000 down payment assistance.
>> right.
>> the other thing is that we already have first time home ownership with down payment assistance programs underway, don't we?
>> uh-huh.
>> yes.
>> that's what I'm saying, I don't know why -- I don't know why -- I mean, I think we ought to know that.
we ought to know how that's moving.
we outing to determine whether -- ought to determine whether there is another way to provide down payment assistance rather than taking the full amount from the corporation's account.
>> yeah, well.
i mean the way I look at it is yes in is a lot of up front expenditure, one that we need to be careful that we can do this and not have a liquidity issue.
but the -- these are investments and we will receive the money back.
it's just a long-term kind of investment.
but you know they have -- the advantage of -- of this program is that if -- is that it is tried and true.
we have done it many, many times.
lenders are used to it, lenders like these programs.
and so --
>> but we have never advanced this much money for down payment assistance.
>> never.
>> from housing finance corporations.
>> right.
>> that's different.
that's -- and if it were 50 or 45,000 it would be different than 450 plus 100,000.
that's a big number.
>> right, it is.
>> the corporation now has how much money available?
>> it has -- well, in unrestricted funds a little over a million dollars.
>> so I'm not saying we ought to say nay today, but I'm saying we may ought to do a bit more fact finding, but you are saying Monday is the deadline.
>> judge, if I could count on that, one of the things that mark told us in the hallway, this just started last week when we heard about the allocation, every new conversation brings new facts and what we found out is that in the webinar on the web with all of the housing people that mark was on last was it Friday morning?
that many of the issuers or many of the bankers on there with the people from treasury said there's no way their issuer could have a meeting prior to next Monday's deadline.
so they have given a couple of days of grace.
that means we could actually really look this over hard and bring it back to you next Tuesday and have discussions with you in between to make sure that we fully understand this and what the risk is.
>> that sounds like a better strategy to me.
i think we ought to take a real good look at other available down payment assistance programs, especially the ones that we control.
right?
there's some that we don't control, then the question is how can we access those if we can.
it may be that -- it may be that this -- only this is available.
but if we do this as a last resort, I would feel a whole lot better after we have looked at other possibilities.
>> yeah.
well, of course we -- we have the -- we have the nsp program that has just started.
but nsp is only for foreclosed homes.
it is a -- it is a program that is -- that is well -- we're, you know, our budget is -- we're trying to assist 44 people.
>> and also nsp should, if it works right, there will be fewer and fewer homes that qualify for nsp as wore closure rates go down, that's the way that it's supposed to work.
it succeeds by ultimately having no more homes to purchase.
>> right.
>> but it is a very narrow program and it will be completed in about nine months because again that one is on an incredibly difficult time line.
>> so these exempt -- exempt from foreclosure -- first home purchases or what kind of conditions.
>> just like all of the one that's you've had in the past.
first time home buyer restriction.
>> I just wanted to make sure that I'm -- I'm staying focused here.
>> the cdbg program, which will -- will begin perhaps in December, but maybe January, it will provide -- it's a down payment assistance, and gap financing program.
the disadvantage of that program is that cdbg rules allow only one-half of the down payment assistance, the home buyer has to come up with the other half of the down payment assistance.
that one will help quite a few home buyers.
>> but what's the total percentage.
>> percent?
>> what?
when -- when cdbg?
there's no percent, it's down payment only.
not mortgage money.
it's just --
>> half of whatever the mortgage is, mortgage percentage is.
>> there's no limit on the amount of the down payment.
cdbg covers 25,000 and the home buyer covers 25,000?
>> right.
whatever the required down payment is.
>> no limit.
>> he just gave you an example of a 50% down payment.
if the required down payment was 5%, you could pay the 5% from these grant moneys, right?
or only half.
>> 2.5.
>> the question is is there a ceiling for the amount of down payment assistance under cdbg?
>> none that I have become aware of.
but I mean there has to be a business logic for having a certain down payment.
>> the market provides the ceiling, because the lender will only provide the --
>> right.
you know, the advantage of this is that we are providing mortgage money and a $50 million program could serve maybe 150 home buyers, so it's normally a larger pool and the income limbs are higher than cdbg or nsp or some of these other programs.
>> if we have a week, I think we ought to take it.
i think we ought to have backup in writing before Tuesday so we can mull over it a few days before taking action.
i will feel a whole lot better after being thoroughly convinced that there is a -- that down payment is critical, which I all have said.
and that -- which you all have said and that the only source for it is the housing finance corporationment then I think somebody ought to try to map out for us a repayment, reimbursement schedule.
>> probabilities.
>> so if we're looking at in all probability 10 years, we ought to know that.
if a four or five year period, much shorter, so it's a lot more palatable, to be honest.
>> I think the average is about 7 years that most people pay off a mortgage if you pardon me or move on.
they pay it off by trading houses or something.
throughout all of our programs it's always been around seven years.
essentially what this amounts to is if you fully originate, you are going to be taking that 450 given it's a $15 million program.
basically investing -- investing those ahfc funds in those mortgages, I mean in those people through the down payment assistance, you will get it back over time and then all at once, whenever they pay off their mortgage or --
>> we will get it back over time plus 6%, is that what I was understanding.
>> yes, assuming that --
>> right now I don't know any other seven year investment that you might have the probability of getting 6% on.
so that's one way to look at it.
>> yeah.
>> if the loan is prepaid more slowly, you get more money.
in other words, you are getting your fee longer.
if they prepay more quickly than we expect, you would get a slightly lower run, that's assume thank the loans prepay in their normal sort of rate on these programs, which is --
>> okay.
>> what I hear us saying, I think, that we would like to do it but we need to know, you know, a bit more.
>> well, I think the two days of grace gives us a chance to give you a more thorough understanding of it by next Tuesday.
>> okay.
and our best predicter of the number of mortgages should let us know the probability of using a full 15 million to originate in the 12 month origination period.
in the end it kind of turns on that, too, right.
>> yes.
>> maybe the answer to that really depends on what the mark is like.
then I have heard mark say that if we go out there a percentage point below market with down payment assistance, the chance of moving or using this amount is very good.
>> I think you raise your probabilities more with something mark had to say, at least one possibility that you were mentioning, that we could choose to issue a lower amount.
we got $23 million allocation from treasury, a preallocation.
but we could do 15, which has been an apartment mum amount for us in the -- optimum amount for us in the past that's worked.
you could increase your probability of great success by lowering that to 10 or 12 million.
it's a total program.
>> I guess somebody has thought to ask treasury to authorize taking down payment assistance from the -- from the bonded amount?
>> that's been lobbied since the program started, judge Biscoe.
and for whatever reason, the treasury -- the premium bonds is a bad word, we have been unable to do the down payment assistance program on this despite the lobbying efforts of the national association of housing finance agencies, local agencies, et cetera.
>> it won't matter if this time the request comes from the Travis County Commissioners court in support of the housing finance corporation --
>> it may.
that may make a difference.
>> we are always happy to have your support, judge.
on behalf of the Travis County hfc and all throughout Texas and around the country.
>> all right.
i'm satisfied on that point then.
>> [laughter]
>> anything else we think that we need?
>> move adjourn.
>> that covers that.
>> we safely have another week.
>> yes.
>> thank you.
>> see you next Tuesday.
>> thank you, judge, Commissioner.
>> all in favor?
that passes by unanimous vote.
thank you for bringing us this challenging opportunity and initiative.
we have adjourned the housing finance corporation haven't we?
>> yes.
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Last Modified:
Tuesday, November 17, 2009 1:40 PM
