A survey by Standard & Poor’s found 44% of respondent HFAs packaged loans into Ginnie Mae MBS, 22% sold loans to Fannie and Freddie, and 31% had issued pass-through bonds to finance originations.
“The HFAs have been resourceful in adapting to low interest rates,” said Larry Witte, a director in S&P’s public finance unit.
Even with the recent jump in mortgage rates, HFAs can’t get the spread they need to return to their traditional model of issuing mortgage revenue bonds to finance their mortgage originations.
Low rates have also led to a runoff of their mortgage portfolios, which they have not been able to replenish.
Witte estimates the average HFA has seen its mortgage portfolio contracted by 19% from 2010 to $2.12 billion in 2012. “Since loans are the highest-yielding assets for HFAs, a decline in loans should reduce income,” the S&P report says.