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Presentation and discussion regarding the pending issuance of Texas Department of Housing and Community Affairs Residential Mortgage Revenue Bonds, Series 2025 B (Non-AMT) and Series 2025 C (Taxable)
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BACKGROUND
On October 10, 2024, the TDHCA Governing Board approved Resolution 25-004 authorizing issuance of Mortgage Revenue Bonds by the Department in an amount not to exceed $1.1 billion for Fiscal Year 2025. After the issuance of RMRB 2025BC, the Department will have $675 million of issuance authority remaining.
On January 14, 2025, the Department issued $175 million Residential Mortgage Revenue Bonds, Series 2025 A (Non-AMT). The bonds settled on February 12, 2025th. As of March 20, 2025, mortgage loans using these funds were fully reserved.
Market conditions remain 22 conducive to the issuance of additional series of tax-exempt and taxable mortgage revenue bonds under the Department’s Residential Mortgage Revenue Bond Trust Indenture (RMRB) to finance mortgage loans for very low, low, and moderate income homebuyers. THDCA is currently offering Bond Funded Mortgage loans 37.5 to 50 basis points lower than mortgage rates available under the TMP (aka TBA) Program.
The Department has moved to a continuous lending model whereby bond-funded mortgage loans are always available to borrowers. Demand is strong and the Department is building a pipeline of loans to be funded by Texas Department of Housing and Community Affairs, Residential Mortgage Revenue Bonds, 2025 Series B (Non-AMT) (2024 B Bonds) and 2025 Series C (Taxable) (2024 C Bonds).
2025 B and 2025 C Bonds
The 2025 B Bonds will be issued in a maximum par amount of $187.5 million; total bond proceeds (par amount of bonds plus bond premium) will not exceed $202 million. The 2024C Bonds will be issued in a maximum par amount of $62.5 million; total bond proceeds (par amount of bonds plus premium) will not exceed $67.5 million.
A portion of the proceeds, not to exceed par of $22,655,000, will utilize recycled volume cap and will be used to repay amounts owed under the Advances and Security Agreement between the Federal Home Loan Bank and the Department representing recycled repayments from February 1, 2025, through April 1, 2025.
The proceeds of the Series 2025 B and Series 2025 C Bonds will be used to finance the purchase of tax-exempt eligible mortgage loans, including down payment assistance second loans, made to first-time homebuyers (with certain limited exceptions) of low, very low, and moderate income, who are acquiring moderately priced residences, and to pay a portion of the costs of issuance of the Series 2025B and Series 2025C Bonds.
The 2025 B Bonds are expected to be offered as traditional RMRBs, with par and premium serial bonds, par term bonds, and premium Planned Amortization Class (PAC) bonds. The 2025 C Bonds are expected to be offered as taxable RMRBs, with par serial bonds, par term bonds, and a premium Planned Amortization Class (PAC) bond. Issuing the 2025 C bonds as taxable will allow the Department to supplement and manage its volume cap balance. Depending on market conditions, proceeds of the 2025 B Bonds and 2025 C Bonds may be invested in a Guaranteed Investment Contract (GIC) until expended; otherwise, proceeds will be invested in overnight obligations that meet indenture requirements.
2025 B and 2025 C Mortgage Loans
Mortgage loans will be 30-year, fixed rate loans guaranteed by FHA, VA, or USDA and pooled into Ginnie Mae MBS. Initially, borrowers will have the choice of unassisted loans without down payment assistance (DPA), three (3) points of DPA, or four (4) points of DPA. DPA will be offered as a repayable loan, where the DPA is provided as 0% interest, non-amortizing, 30-year second mortgage loan that is due on sale or refinance of the first loan. Unassisted first mortgage loans on this transaction are expected to be offered around 50 basis points lower than loans with 3% repayable DPA and 75 basis points lower than loans with 4% repayable DPA. DPA options will be subject to modification in response to borrower demand or market conditions.
The issuance of $187.5 million of par amount of 2025 B Bonds will provide for $187.5 million in par amount of mortgage loans to be originated. The issuance of $62.5 million of par amount of 2025 C Bonds will provide for $62.5 million in par amount of mortgage loans to be originated. The associated down payment assistance, lender compensation, and servicing fees for the second loans are expected to total approximately $10.7 million.
Underwriting Team
RBC will serve as Book Running Senior Manager, with Jefferies and Morgan Stanley as co-senior managers, with Ramirez, JP Morgan, Piper Sandler, Wells Fargo, and Loop Capital serving as co-managers for this transaction.
Timing
Preliminarily, the key events are as follows, and subject to change:
March 21, 2025 Program Funds Available for Reservation
April 28, 2025 Preliminary Official Statement to be Released
May 6, 2025 Bonds Priced, Bond Purchase Agreement to be Executed
May 13, 2025 Official Statement to be Released
June 10, 2025 Bond Closing
Department Contribution
The contribution by the Department is projected to be $4,354,053.50 and will not exceed $10 million, which will to be used to fund a portion of the down payment and closing cost assistance and costs related to the acquisition of qualifying mortgage loans (including the payment of lender compensation and servicing fees for second mortgage loans) and to pay all or a portion of the costs of issuance of the 2025 B and 2025 C Bonds. The contribution will be funded from amounts on deposit in the RMRB indenture. Capitalized interest of up to $10 million may be paid from the RMRB indenture as necessary. As with prior transactions, these amounts are maximums; the actual contribution and capitalized interest expense are expected to be less than that approved by the Board.
Summary
Staff will continue to work with the Department’s financing team to ensure the economic viability of the 2025 B and 2025 C Bonds. Depending on market conditions and other factors, the amount of 2025 B and 2025 C Bonds issued may be less than described herein and it is possible that one series of the Bonds may be viable and the other not, in which case, Staff would move forward with the series that makes economic sense.
Exhibits
The Exhibits for this issuance can be found online at the Department’s Board Meeting Information Center website: <http://www.tdhca.state.tx.us/board/meetings.htm>.