2012 PHFA Annual Report - Pennsylvania Housing Finance Agency

Pennsylvania Housing Finance Agency
Management’s Discussion
& Analysis (Unaudited) June 30, 2012 and 2011
(Amounts rounded to facilitate easy reading)
Discussion and Analysis of the Significant
Changes in the Balance Sheets
Cash, Cash EquivALEnts and InvestMEnts
Cash, cash equivalents and investment balances decreased 12%
to $864 million at June 30, 2012 from $980 million at June 30, 2011,
compared to a decrease to $980 million at June 30, 2011 from
$1.5 billion at June 30, 2010. Typically, balances of cash, cash
equivalents and investments fluctuate relative to the timing of the
receipt of bond proceeds and the disbursement of those proceeds
for mortgage loans. The current interest rate environment challenges
the Agency since it directly affects the Agency’s ability to issue
bonds that would produce marketable mortgage interest rates.
In response to this challenge, the Agency pooled and sold loans
to the Government National Mortgage Association (“GNMA”) to
generate liquidity to meet loan production needs. Since income from
that process approximates the required funding of new mortgage
loan purchases, the effects result in reduced levels of cash and
investments when compared to prior years. A discussion of the
Agency’s housing programs and how the Agency financed those
programs is included in the following paragraphs.
Funding Activity of tHE
Multifamily Housing ProgrAM
The Multifamily Housing Program funded approximately $65 million
of mortgage loans compared with $200 million in the prior year.
The mortgage loan portfolio decreased by 3% to $452 million at
June 30, 2012 from $468 million at June 30, 2011, after the effects
of scheduled principal payments, prepayments and the provision for
loan loss. This is compared to a decrease of 6% to $468 million at
June 30, 2011 from $498 million at June 30, 2010.
The expense for the provision for loan loss decreased slightly
by 3% to $3.0 million for the year ended June 30, 2012 from
$3.1 million at June 30, 2011 based on management’s estimate of
future portfolio performance.
Loan PurCHAse and Financing
Activity of tHE SingLE FAMily
Mortgage Loan ProgrAM
The Single Family Mortgage Loan Program purchased approximately
$292 million of new single-family mortgage loans compared with
$816 million in the prior year. The mortgage loan portfolio decreased
5% to $4.0 billion at June 30, 2012 from $4.2 billion at June 30, 2011,
after the effects of scheduled principal payments, prepayments and
the provision for loan loss. This is compared to an increase of 8% to
$4.2 billion at June 30, 2011 from $3.9 billion at June 30, 2010.
The expense for the provision for loan loss remained at $5.0 million
for the year ended June 30, 2012 and 2011 based on management’s
estimate of future portfolio performance.
Sales of mortgage loans through GNMA continued to be a primary
funding source for single-family loan purchases through the recently
implemented secondary market mortgage purchase program.
Through this program, implemented during 2011, the Agency
accessed the To-Be-Announced (“TBA”) market by securitizing its
mortgage loans in the Mortgage-Backed Securities (“MBS”) market
through GNMA.
The TBA market facilitates the forward trading of MBS securities
backed by government-sponsored entities such as GNMA. GNMA
assembles loans into collections or “pools” and offers those
as mortgage-backed securities through a process known as
securitization. Various private and public investors purchase these
MBS securities. This program allows the Agency to fund loans at
competitive market rates.
During the years ended June 30, 2012 and 2011, the Agency
pooled mortgage loans with a principal balance of $196.6 million
and $141.6 million, respectively, into GNMA MBS. The securities
are then purchased by private investors or held by the Agency.
The Agency earns revenue for servicing loans in these GNMA pools,
which is included as program income and fees on the Statements
of Revenues, Expenses and Changes in Fund Net Assets.
Mortgage loans that have been securitized into pools and sold
through GNMA are not included on the Agency’s financial statements.
The Agency realized a net gain during the years ended June 30,
2012 and 2011 of $14 million and $4.5 million, respectively, on the
sale of these pools. Net gains are recorded as program income
and fees on the Statements of Revenues, Expenses and Changes
in Fund Net Assets.
AssistanCE Activity of tHE HoMEowners’
EMErgency Mortgage AssistanCE ProgrAM
HEMAP provided approximately $8.5 million of continuing emergency
mortgage assistance loans compared with $29 million in the prior
year. The mortgage assistance portfolio decreased 14% to $56 million
at June 30, 2012 from $65 million at June 30, 2011, after adjustments
for the provision for loan loss, prepayments, and scheduled principal
payments. This is compared to an increase of 18% to $65 million at
June 30, 2011 from $55 million at June 30, 2010.
The expense for the provision for loan loss is maintained at $11 million
at June 30, 2012 and 2011, respectively, based on management’s
estimate of future portfolio performance.
Additionally, HEMAP passed-through federal Emergency
Homeowners’ Loan Program funding totaling $52 million to eligible
homeowners in danger of losing their homes to foreclosure. Loans
funded by this program are owned by the U.S. Department of
Housing and Urban Development and are reported on HEMAP’s
books as federal program awards and expenses on the Statements
of Revenues, Expenses and Changes in Fund Net Assets.
Long-tErm DEBt Activity of
tHE Multifamily Housing ProgrAM
During the year, the Multifamily Housing Program did not issue any
bonds. As a result, the total outstanding bonds balance at June 30,
2012 decreased by 25% to $127 million because of scheduled debt
payments and redemptions. The Multifamily Housing Program did
not issue any bonds during the years ended June 30, 2011 and 2010.
The Multifamily Housing Program finances various housing
developments throughout the Commonwealth of Pennsylvania
with multifamily development bonds proceeds relating to the
construction or rehabilitation of multifamily rental housing
developments generally designed for persons or families of low and
moderate income or the elderly.
Long-tErm DEBt Activity of tHE SingLE
FAMily Mortgage Loan ProgrAM
During the year, the Agency issued $82 million of Single Family
Mortgage Revenue Bonds, Series 2011-113, to refund Series 2011-
111 issued during September 2011. Total debt outstanding of the
Single Family Mortgage Loan Program decreased by 10% to $4.0
billion because of scheduled debt payments and bond calls totaling
$432 million using mortgage prepayments. During the years ended
June 30, 2011 and 2010, the Agency issued Mortgage Revenue
Bonds totaling $596 million and $1.2 billion, respectively. The Single
Family Mortgage Loan Program provides residential mortgage
financing programs that serve low- to middle-income qualified
homebuyers with mortgage revenue bond proceeds.
Net Assets
Net assets increased slightly to $821 million or 1% at June 30, 2012
from $810 million at June 30, 2011. This can be compared to an
increase of 5% to $810 million at June 30, 2011 from $771 million
at June 30, 2010. Despite strong operating results, net assets were
negatively impacted by a $27 million non-cash expense attributed to
terminations of certain interest rate swap hedges, as discussed in
the following section.
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2012 Financial statements annual report 2012
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