April 5, 2013

National Association of Local Housing Finance Agencies 2013 Annual Conference

Panel: Homeownership Tools in a Historic Low Interest Rate Environment

Helen Feinberg Managing Director

RBC Capital Markets

Disclaimer

RBC Capital Markets, LLC (“RBC CM”) is providing the information contained in this document for discussion purposes only and not in connection with RBC CM serving as Underwriter, Investment Banker, municipal advisor, financial advisor or fiduciary to a financial transaction participant or any other person or entity. RBC CM will not have any duties or liability to any person or entity in connection with the information being provided herein. The information provided is not intended to be and should not be construed as “advice” within the meaning of Section 15B of the Securities Exchange Act of 1934. The financial transaction participants should consult with its own legal, accounting, tax, financial and other advisors, as applicable, to the extent it deems appropriate.

This presentation was prepared exclusively for the benefit of and internal use by the recipient for the purpose of considering the transaction or transactions contemplated herein. This presentation is confidential and proprietary to RBC Capital Markets, LLC (“RBC CM”) and may not be disclosed, reproduced, distributed or used for any other purpose by the recipient without RBCCM’s express written consent.

By acceptance of these materials, and notwithstanding any other express or implied agreement, arrangement, or understanding to the contrary, RBC CM, its affiliates and the recipient agree that the recipient (and its employees, representatives, and other agents) may disclose to any and all persons, without limitation of any kind from the commencement of discussions, the tax treatment, structure or strategy of the transaction and any fact that may be relevant to understanding such treatment, structure or strategy, and all materials of any kind (including opinions or other tax analyses) that are provided to the recipient relating to such tax treatment, structure, or strategy.

The information and any analyses contained in this presentation are taken from, or based upon, information obtained from the recipient or from publicly available sources, the completeness and accuracy of which has not been independently verified, and cannot be assured by RBC CM. The information and any analyses in these materials reflect prevailing conditions and RBC CM’s views as of this date, all of which are subject to change.

To the extent projections and financial analyses are set forth herein, they may be based on estimated financial performance prepared by or in consultation with the recipient and are intended only to suggest reasonable ranges of results. The printed presentation is incomplete without reference to the oral presentation or other written materials that supplement it.

IRS Circular 230 Disclosure: RBC CM and its affiliates do not provide tax advice and nothing contained herein should be construed as tax advice. Any discussion of U.S. tax matters contained herein (including any attachments) (i) was not intended or written to be used, and cannot be used, by you for the purpose of avoiding tax penalties; and (ii) was written in connection with the promotion or marketing of the matters addressed herein. Accordingly, you should seek advice based upon your particular circumstances from an independent tax advisor.

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TBA Market

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RBC Capital Markets TBA ProgramLower Cost, Increased Flexibility

RBCCM bankers have worked with RBC’s MBS desk to offer a reduced cost TBA program for HFAs with liquid assets

Considerations:

Overview:

RBCCM has created TBA programs for seven issuers to date

Forward trades (GNMA I or GNMA II) can be structured for 30, 60 or 90 day delivery at any time and for any amount

Variance for delivering MBS may be customized. RBC offers variability ranging from +/- 20% and +/- 30% to 100%

RBC’s TBA program differs from other programs in that the issuer retains ownership of loans until MBS are sold to RBC. The Issuer may choose to sell on a forward basis or wait until MBS are available and sell in the spot market.

Other programs purchase all loans from the point of reservation (changing the price each day) and have rights to specific loans. In addition, sponsors retain a right to collect penalties from lenders under certain circumstances.

Due to the structure, RBC’s program is more flexible in that it allows an issuer to easily move between bond funding and TBA MBS Sale funding

Allows issuers to maintain control of their program – i.e. the issuer establishes mortgage rates, decides when and how to hedge and controls lender relations

Required Issuer capital is determined based on the maximum loans that may be reserved before a trade/hedge is executed

RBC is a financially strong trading partner due to our Aa3/AA-/AA ratings. Global Finance Magazine ranked RBC as North America’s safest bank from 2009 - 2012

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Municipal Pass-Through Bond

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Summary of the HFA MBS Pass-Through Bond

Mortgage Originator

Seller / Servicer CreatesGNMA or FNMA MBS

Bond TrusteePass-Through Bond Holder

Pro rata principal and interest passed through to investors

Bond Underwriter

Structure & market Pass-Through Bond

Housing Finance Agency

Mortgage Loan

Funding

Mortgage Payments

Principal & Interest

Bond Proceeds

Bond Proceeds

Distribution / Official Statement

Bond Sale / Purchase Contract

The parties to a housing bond transaction and the flow of funds are detailed below.

MBS Payments

Home Buyer

Mortgage Loan

Funding

Res

idua

l Int

eres

t

1st Time Homebuyer, MRB Qualified

MCC, Refinance, Other

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HFA MBS Pass-Through Structure Characteristics

Backed by GNMA and/or FNMA collateral

$1.00 denomination at closing, $0.01 thereafter; DTC eligible with no redemption notice

Can be sold at par or at a premium

No sinking fund amortization

MBS principal received during the month passed through to bond holders on first day of following month

Can be sold Tax-Exempt or Taxable

Par of Mortgage Backed Securities (MBSs) equal to par of the bonds

Full MBS portfolio delivered in advance for refunding and at closing for new money

Single 30 year term bond

Bonds:

No Debt Service Reserve Fund; Lag and trustee fees must be financed

Aaa / AA+ / AAA rating from Moody's’, S&P, or Fitch respectively

Mortgages:

All repayments and prepayments call bonds on 1st of each month

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HFA MBS Pass-Through Bond Benefits and Concerns

Interest rate savings as compared to traditional structure (3.375% bond yield)

No Negative Arbitrage (no GICs)

Blind pool at pricing, defined pool at closing

Public sale within existing or stand-alone Indenture

HFA receives income over time (I/O strip)

Up to 60 days forward delivery

Facilitates the receipt of Zero Participation interest

Public sale facilitates liquidity and secondary market growth

Blending down excess spread can be complicated

Benefits:

Concerns:

Timing of pricing and closing

10 year par call

Interest rate risk from loan reservation to bond pricing

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Building Pass-Through Bond Liquidity

$40,863,097

Illinois Housing Development Authority

Series 2012A

$37,756,249

Iowa Finance Authority

2012 Series 1(Taxable)

2013 Series 1(Tax-Exempt)

$200,000,000

Minnesota Housing Finance Agency

2012 Series A & B

2013 Series A & B

First Pass-Through bond sold at premium

100% GNMA

Portfolio included all tax-exempt MRB eligible loans

12/12/12: 2.60% @ 104.00, 2.16% yield

Premium dollars funded DPA

100% loans originated

Taxable NIBP refunding; tax-exempt new money issue

100% loans originated

90% GNMA MBS 10% FNMA MBS

Portfolio included all tax-exempt MRB eligible loans

Excess spread retained on taxable refunding

12/05/12: 2.15% @ Par (T/E) 12/12/12: 2.30% @ Par (Tax)

Four offerings, including 1st Pass-Through bond issue

Partially originated MBS pool

First offering 100% GNMA, most recently 65% / 35%

Portfolio included all tax-exempt MRB eligible loans

07/31/12: 2.60% @ Par 10/03/12: 2.25% @ Par 01/09/13: 2.35% @ Par

Conforming MBS loans on balance sheet

$25,000,000

New Mexico Mortgage Finance Authority

2013 Series A

Source: Thomson Reuters

1st taxable Pass-Through issue

100% of loans originated

81% GNMA MBS 19% FNMA MBS

Portfolio included MCC and other non-conforming loans

11/05/12: 2.625% @ Par

Over spread on alternative tax-exempt offering; need for subsequent issue averted

$49,846,579

Washington State Housing Finance Commission

2012 Series A

2013 Series A

Private placed thru FHLB

99.7% GNMA MBS0.3% FNMA MBS

Portfolio included all tax-exempt MRB eligible loans

09/28/12: 2.19% @ Par 01/22/13: 2.45% @ Par

Excess spread retained on taxable refunding

100% loans originated

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Modified Pass-through Structure applied to Local HFA Bond Transaction

$8,270,000 ORANGE COUNTY HOUSING FINANCE AUTHORITY

HOMEOWNER MORTGAGE REVENUE REFUNDING BONDS

SERIES 2013A (TAXABLE)

Modified Pass-Through Structure refunded prior bonds @ 2.625%

Underlying MBS GNMA Collateral carried 4.28% weighted average pass-thru rate (4.78% weighted average mortgage rate)

Bonds issued on a Taxable basis to allow issuer to retain excess spread

Issuer had outstanding New Issue Bond Program bonds @ 3.48%

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HFA MBS Pass-Through Bond Investor Profile

32%

68%

Taxable Crossover Traditional Tax exempt

3%

1%

30%

20%

46%

Bank Insurance Co. Money Mngr. Corporation CRA

• 40 different investors have participated thus far:

- 27 investors on tax-exempt

- 13 investors on taxable

• Many of the tax-exempt buyers are participating based on the attractiveness of the tax-equivalent yield.

• For community banks, CRA mandate makes this product attractive.

• Many of the buyers on the pure pass- through structure are now participating on the step-in structure as well.

• Secondary market liquidity has been a major topic of discussion and continues to improve with each subsequent issuance.