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Presentation and Discussion of Bond Finance and Home Ownership structure, products, processes, and the roles of third-party vendor relationships.
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BACKGROUND
The Bond Finance and Home Ownership Division assists Texas families and individuals of low-to-moderate income obtain home ownership.
Bond Finance administers the Department's Mortgage Revenue Bond (MRB) and Mortgage Lending Programs and is responsible for managing the Bond Indentures.
Homeownership manages the loan level interface and relationships with lenders, realtors, and borrowers in partnership with the Program Administrator and Master Servicer. Homeownership is responsible for marketing TDHCA’s mortgage programs throughout the State of Texas.
TDHCA’s Bond Finance Division is entirely self-funded, receiving no funds from Federal, State, or Local Governments. Bond Finance makes quarterly contributions to TDHCA to fund the Department’s portion of expenses and shared services.
Bond Indentures
A Bond Indenture is a contractual agreement between the issuer and the trustee for the benefit of the bondholders. It outlines the terms and conditions of the bonds. It serves to protect the interests of bondholders by clearly defining their rights and the issuer’s commitments.
TDHCA issues Mortgage Revenue Bonds (MRB) and purchases TDHCA-originated Government guaranteed Mortgage-Backed Securities (MBS) under two Bond Indentures: Residential Mortgage Revenue Bond (RMRB) and Single-Family Mortgage Revenue Bond (SFMRB). TDHCA is transitioning to issue out of RMRB exclusively going forward.
As of February 28, 2025, TDHCA’s SFRMB and RMRB indentures held $3.09 billion in assets against $2.97 in liabilities for an overall parity ratio of 103.92%, as reported in the Department’s Quarterly Investment Report at the April Board Meeting.
Bond Finance and Home Ownership Programs
Bond Finance and Home Ownership work in tandem to promote home ownership for qualifying low-to-moderate income Texas families and veterans. Mortgage loan programs are promoted and managed by Home Ownership and are financed by Bond Finance.
Loan Programs
TDHCA offers Mortgage loans through two programs.
My First Texas Home (MFTH) is exclusively for qualified first-time, low-to-moderate income, Texas homebuyers and veterans. MFTH is funded primarily through the issuance of Mortgage Revenue Bonds (MRBs). Bond-funded loans typically provide the lowest possible rates. MFTH loans include Repayable Down Payment Assistance (DPA) ranging from 2% to 5%. The MFTH program also provides an “unassisted” loan with 0% DPA, which is essentially a TDHCA funded rate buy-down. Mortgage Credit Certificates are also issued under the MFTH program.
My Choice Texas Home (MCTH) is funded is available for low-to-moderate income Texans who don’t qualify for MFTH. MCTH is funded primarily through TDHCA’s Taxable Mortgage Program (TMP) with originated mortgage loans being sold in the market. TDHCA provides Repayable and Forgivable Down Payment Assistance (DPA) ranging from 2% to 5% of the purchase price.
These programs produce an average $1 billion in mortgage loans annually, with 98% of those to first-time buyers. The Department takes over $100 million in loan reservations and funds an average of 458 loans each month. Borrowers through the program, on average, receive $7,626 of Down Payment Assistance.
Nearly 100% of funds go to Texas families and veterans with income below 100% of Area Median Income (AMI). The Program’s average household income is $75,364 per year.
Down Payment Assistance
Down Payment Assistance is designed to help homebuyers cover some of the upfront costs associated with purchasing a home and provide a path to homeownership sooner rather than later. DPA also provides an opportunity to supplement other funding sources and ultimately lower the borrower’s monthly payment, supporting sustainability.
TDHCA funds DPA through indenture excess revenue, previous DPA repayments, excess servicing income MSR, premium on MRB Issuance, and premium received selling TBA Loans.
TDHCA DPA programs include a repayable 30-Year and a 3-Yr forgivable. Both are 0%, non-amortizing, second liens, due upon refinance or repayment of the first lien mortgage loan or if the property is no longer the borrower’s primary residence.
Mortgage Credit Certificates
Mortgage Credit Certificates are a homebuyer assistance program designed to help low-to-moderate income families afford homeownership. The program allows homebuyers to claim a dollar‐for‐dollar tax credit for some portion of mortgage interest paid per year. Remaining mortgage interest paid may still be taken as an itemized deduction.
To be eligible, individuals must be a first‐time homebuyer or qualified veteran, meet the program’s income and purchase price restrictions, and use the home as their primary residence. MCCs generally are subject to the same eligibility and targeted area requirements as Mortgage Revenue Bonds (MRBs).
TDHCA offers MCC only on Combo-Loans provided by the Department.
Funding Sources
Mortgage Revenue Bonds
TDHCA issues Mortgage Revenue Bonds (MRBs) to finance below market-rate mortgage loans for qualified, low-to-moderate income, first-time Texas homebuyers and veterans. The Department typically issues a combination of tax-exempt and taxable bonds.
Interest rates on "tax-exempt" bonds are lower than interest rates on "taxable" bonds. This spread between tax-exempt and taxable bond interest rates creates the subsidy required to achieve and offer below-market interest mortgage rates.
Over the past three fiscal years (2023-2025), TDHCA has issued $2.245 billion in MRBs. Bond proceeds are used to originate qualifying mortgage loans which are pooled into GNMA MBS pass-through Certificates (US Govt. Guaranteed) by the Master Servicer.
The GNMA certificates are purchased into TDHCA’s bond indenture by the Trustee using bond proceeds. Those GNMA certificates are the collateral for the Mortgage Revenue Bonds. Cashflows from mortgage principal and interest payments flow through the GNMA certificates to make debt service payments on the bonds.
Taxable Mortgage Program (TMP)
Through TDHCA’s Taxable Mortgage Program, the Department originates qualified mortgage loans through its lender network and sells those loans in the market. These loans are hedged and sold in the To Be Announced (TBA) mortgage market.
TDHCA currently uses a TBA Provider, who quotes and guarantees the lock-price for Mortgage-Backed Securities (MBS) to be delivered by the Department in the future. The TBA provider takes on all market, extension, and fall out risk on the TBA loans.
The Department uses the quoted prices to set mortgage rates and the TDHCA lender network originates loans. Those loans are pooled into MBS and sold in the market. TDHCA receives margin on the sales proceeds as well as a Mortgage Service Release (MSR) premium on the loans.
Third Party Providers
To implement and manage these programs, Bond Finance and Home Ownership rely currently on the services of several third parties. Bond Finance works with Bracewell for Bond and Tax Counsel. McCall Parkhurst acts as Disclosure Counsel for the Department. TDHCA works with CSG as Financial Advisor for assistance with bond issuance and indenture financial management. Issuing MRBs requires the use of an underwriting team that employs underwriting counsel. TDHCA indentures are managed by Bank of New York as Trustee. Hilltop Securities acts as THDCA’s program administrator and TBA provider, while new TDHCA loans are serviced by The Money Source (TMS).
Full Board Report
A full report to the Board is attached to this item which provides additional supporting details.