CalHFA committee backs moving forward on taxable-bond option to expand My Home down-payment aid

At a meeting of the California Housing Finance Agency’s New Opportunities Committee, staff presented an early-stage plan to expand the agency’s My Home down-payment assistance program by adding a 2.5 percent third-lien loan funded through taxable bond issuance, officials said.

Ellen Martin, CalHFA’s director of homeownership, told the committee the enhanced option would supplement the existing My Home silent second (generally 3–3.5 percent) and would be repayable at resale or refinance at a low fixed interest rate. Martin said CalHFA would issue taxable bonds to purchase both the first mortgage and the new third lien; the first mortgages would be securitized into Government-Sponsored-Enterprise–insured mortgage-backed securities that CalHFA would retain, and proceeds from that retained MBS would be used to pay debt service on the bonds and provide an agency spread.

The proposed trade-off for borrowers would be a slightly higher first-mortgage rate—staff estimated roughly 50 basis points above market in current conditions—paid in exchange for the additional down-payment assistance. Martin and Erwin Tam, a senior finance executive, said the product is aimed at low- and moderate-income first-time buyers (up to 150 percent of area median income) and would particularly help buyers of manufactured homes, who typically must bring 5 percent down to access conventional financing.

Committee members pressed staff on the mechanics and risks. Martin identified four risk areas: the sustainability of the Home Purchase Assistance Fund (which recycles repayments), market risk if mortgage rates fall and make the product unattractive, program risk from increasing loan layers per borrower, and credit and leverage risks from issuing bonds. Tam and other staff said mitigation would include careful sizing of the first issuance, robust underwriting, and monitoring repayment recycling; staff discussed an initial conservative tranche (staff cited $50 million as a working example) to limit early exposure and allow for true-ups if demand grows.

Board members asked for additional analysis. Director Jim Cervantes and Chair Doctor Fred White requested downside scenarios and exact My Home default-rate statistics before the item goes to the full board. Executive Director Tina Johnson Hall and other members emphasized CalHFA’s strong historical My Home performance—staff said roughly 60 to 65 percent of My Home loans have gone to communities of color and that default rates are currently very low—and said staff should lead with that performance when reporting to the board.

There was committee consensus to proceed with necessary documentation and to pursue amendments to existing financing resolutions to permit the bond use described by staff; staff were asked to prepare materials for a report to the full board at the September meeting and to return with underwriting and downside-scenario analysis. No formal board resolution or vote on the enhanced product occurred at the committee meeting.

Next steps: staff will produce downside scenarios, provide default-rate and underwriting detail, draft the financing-resolution amendments the structure requires, and prepare a board report for the September meeting.