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Presentation and discussion regarding the issuance of Texas Department of Housing and Community Affairs Residential Mortgage Revenue Bonds, Series 2025A (Non-AMT)
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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 2025A, the Department will have $925 million of issuance authority remaining.
On June 25, 2024, the Department issued $150 million Residential Mortgage Revenue Bonds, Series 2024 C (Non-AMT) and $100 million Residential Mortgage Revenue Bonds Series 2024 D (Taxable). The bonds settled on July 18, 2024. These funds are now fully reserved.
Market conditions remain reasonably conducive to the issuance of additional series of tax-exempt 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. We currently estimate mortgage rates around 25 to 50 basis points lower than rates available under the TMP (aka TBA) Program.
Demand has slowed and as a result, the Department is doing a smaller issue of $175 million and is issuing only Tax-Exempt bonds to ensure the lowest possible mortgage rates. Staff is looking to issue Texas Department of Housing and Community Affairs, Residential Mortgage Revenue Bonds, 2025 A (Non-AMT).
A portion of the proceeds, not to exceed par of $150,000,000 and premium of $12,000,000 will utilize new private activity volume cap.
A portion of the proceeds, not to exceed par of $40,000,000, 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 September 1, 2024, through January 1, 2025.
2025A Bonds
The 2025A Bonds will be issued in a maximum par amount of $175 million; total bond proceeds (par amount of bonds plus bond premium) will not exceed $187 million.
Proceeds of the Series 2025A Bonds will be used to (a) purchase Mortgage Certificates and pay related costs, (b) fund DPA Loans, and (c) pay a portion of the costs of issuance of the Series 2025A Bonds.
The 2025A Bonds are expected to be offered as traditional RMRBs, with par and premium serial bonds, par and premium term bonds, and premium Planned Amortization Class (PAC) bonds. Depending on market conditions, proceeds of the 2025A Bonds may be invested in a Guaranteed Investment Contract (GIC) until expended; otherwise, proceeds will be invested in overnight obligations that meet indenture requirements.
2025A 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 being offered at 6.00%, 85 basis points lower than the FHLMC Primary Market Survey rate of 6.85% as of 12/26/2024. Three percent DPA loans are currently being offered at 6.625%, 37.5 basis points lower than GNMA TBA loans with 3% repayable DPA. Four percent DPA loans are expected to be offered at 7.00%, 25 basis points lower than GNMA TBA 4% repayable DPA . DPA options will be subject to modification in response to borrower demand or market conditions.
The issuance of $175 million of par amount of 2025A Bonds will provide for $175 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 $8.5 million.
Underwriting Team
Jefferies is expected to serve as Book Running Senior Manager, with RBC Capital Markets and JP Morgan as co-senior managers, with Ramirez, Morgan Stanley, 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:
December 26, 2024 Program Funds Available for Reservation
January 8, 2025 Preliminary Official Statement to be Released
January 14, 2025 Bonds Priced, Bond Purchase Agreement to be Executed
January 21, 2025 Official Statement to be Released
February 12, 2025 Bond Closing
Department Contribution
The contribution by the Department is projected to be $4,074,346 and will not exceed $7 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 A 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. Capitalized Interest is expected to be less $600,000 on this transaction.
Summary
Staff will continue to work with the Department’s financing team to ensure the economic viability of the 2025 A Bonds. Depending on market conditions and other factors, the amount of 2025 A Bonds issued may be less than described herein.
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>.