HFA Initiative

Special Q & A

November 11, 2009

1. Question:

Some concern has been expressed about an HFA’s ability to withdraw money, mortgage loans or other assets from an indenture that is utilized with the HFA Initiative New Issue Bond Program or the Temporary Credit and Liquidity Program.

Please clarify permissible withdrawals associated with the NIBP and TCLP.

1a. Answer (NIBP):

The HFA may make voluntary withdrawals of cash or other assets from the lien of the Indenture only under the following circumstances and within the following limits:

(1) No withdrawals whatsoever shall be made during any period when any of the long-term credit ratings on the Program Bonds are below the initial long term credit ratings of the Program Bonds required in connection with the New Issue Bond Program.

(2) No withdrawals whatsoever shall be made to the extent that such withdrawal would adversely affect any of the long-term credit ratings on the Program Bonds that are effective immediately prior to such withdrawal.

(3) Withdrawals shall be made only to fund programs sponsored by, or other administrative expenses of, the HFA which have been historically funded with the proceeds of withdrawals from the Indenture, and the annual amount of such withdrawals shall be consistent with the annual amount of past withdrawals for such purposes.

(4) Prior to and as a condition to each withdrawal, the HFA shall (i) obtain and furnish to the GSEs and to Treasury a confirmation from each of the rating agencies maintaining a long-term rating on the Program Bonds that the proposed withdrawal will not adversely affect that rating and (ii) provide a written certification to the GSEs and to Treasury specifying the amount and purpose of the withdrawal and that the requirements of this subpart (b) have been met with respect to such withdrawal.

1.b Answer (TCLP)

The HFA may make voluntary withdrawals of cash or other assets from the lien of the Indenture only under the following circumstances and within the following limits:

(1) No withdrawals whatsoever shall be made during any period that either (A) any of the unenhanced long term credit ratings on the Bonds are below (minimum program ratings) or (B) Bank Bonds are outstanding (except withdrawals to redeem Bank Bonds)

(2) No withdrawals whatsoever shall be made to the extent that such withdrawal would adversely affect any of the unenhanced long-term credit ratings on the Bonds that are effective immediately prior to such withdrawal.

(3) Withdrawals shall be made only to (A) fund programs sponsored by, or other administrative expenses of, the HFA which have been historically funded with the proceeds of withdrawals from the Indenture, and the annual amount of such withdrawals shall be consistent with the annual amount of past withdrawals for such purposes or (B) to redeem Bank Bonds or Bonds.

(4) Prior to and as a condition to each withdrawal, the HFA shall (i) obtain and furnish to the GSEs and to Treasury a confirmation from each of the rating agencies maintaining a long-term rating on the Program Bonds that the proposed withdrawal will not adversely affect that rating and (ii) provide a written certification to the GSEs and to Treasury specifying the amount and purpose of the withdrawal and that the requirements of Section 7.25(j) of the Reimbursement Agreement have been met with respect to such withdrawal.

2. Question:

What are the requirements for the New Issue Bond Program option to utilize 30% of proceeds to refund variable rate debt?

2. Answer:

Refunding of variable rate debt cannot exceed 30% of NIBP proceeds, measured on a cumulative basis. The intent is to allow an HFA to manage refunding to achieve some scale, if desired, without the possibility that such refundings will exceed 30% of its total Program Bond fundings. For example, an HFA cannot use more than 30% of its first NIBP funding for refunding of variable rate, However, if the HFA used none of the first funding for this purpose, it could use up to 60% of its second funding, assuming equal sized draws

3. Question:

Do the New Issue Bond Program and the Temporary Credit and Liquidity Program permit credit tranched bonds? If yes, what restrictions apply?

3. Answer:

·  Credit tranched bonds are eligible for both the NIBP and the TCLP with the following conditions:

o  The use of credit tranching must have been an established and customary practice by the HFA prior to October 19, 2009, the announcement date of the HFA Initiative

o  Eligible VRDOs under TCLP, or eligible Program Bonds under NIBP’s are limited to AAA securities under the indenture, the lowest rated tranche must be rated BBB- or higher, and no future issuance from the same indenture may be senior to existing Program Bonds. In addition, the credit rating on the Program Bonds must be maintained.

4. Question:

The term sheet for the New Issue Bond Program currently states that escrowed proceeds can be invested in securities with a maturity date of “one year or less”. Because the Variable Rate on bonds in escrow is 28 day Treasuries, it has been suggested this may result in interest rate mismatches and may adversely affect cash flow stress tests. Should the maximum maturity be reduced?

4. Answer:

In order to eliminate this potential interest rate risk, the requirement is changed from one year or less to maturity of one month or less. The NIBP Term Sheet will be amended to reflect this change. Please note, the GSEs will be continuing to examine the ramifications of this solution and will provide more detail on this issue as it is developed.

5. Question:

Can New Issue Bond Program proceeds be used for “replacement refundings”?

5. Answer:

No. The primary intent of the New Issue Bond Program is to facilitate the origination of new mortgages. The VRDO exception was provided to assist in reducing the economic burden of VRDO's to HFA’s.

6. Question:

Please clarify the New Issue Bond Program Initial Securitization fee structure.

6. Answer:

For Total Issuance Amount less than or equal to $50 million:

·  Greater of 20 bps of principal amount, or $50,000 per transaction for the GSEs in aggregate, payable at time of settlement

For Total Issuance Amount greater than $50 million

·  Greater of 10 bps of principal amount, or $100,000 per transaction for the GSEs in aggregate, payable at time of settlement