Exhibit 10.1
MEMORANDUM OF UNDERSTANDING
AMONG
THE DEPARTMENT OF THE TREASURY,
THE FEDERAL HOUSING FINANCE AGENCY,
THE FEDERAL NATIONAL MORTGAGE ASSOCIATION, AND
THE FEDERAL HOME LOAN MORTGAGE CORPORATION
W I T N E S S E T H:
WHEREAS, the disruptions in housing markets, housing finance and capital markets
have constricted the general availability of credit to many different credit
markets, particularly those related to housing;
WHEREAS, the Federal Government has responded by establishing numerous special
programs to fill the gaps created by this temporary, but severe deterioration in
credit availability;
WHEREAS, the United States Congress, in enacting the Housing and Economic
Recovery Act of 2008, the Emergency and Economic Stabilization Act of 2008, the
American Recovery and Reinvestment Act of 2009 and other legislation provided
the United States Department of Treasury and other agencies of government with
the authority, funding, and direction to undertake such credit support programs,
with many of these program directed specifically at supporting housing markets
and housing finance;
WHEREAS, state and local housing finance agencies (HFAs) have a core mission of
providing financing for (i) affordable mortgage financing for low and moderate
income households, especially first-time homebuyers, and (ii) affordable
multifamily rental properties;
WHEREAS, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation (collectively, the GSEs) have congressional charters with a
statutory purpose of providing stability, liquidity and affordability to housing
finance, especially in support of affordable housing;
WHEREAS, the Federal Housing Finance Agency, which was formed by a legislative
merger of the Office of Federal Housing Enterprise Oversight, the Federal
Housing Finance Board and the United States Department of Housing and Urban
Development GSE mission team, regulates the GSEs and the twelve (12) Federal
Home Loan Banks;
WHEREAS, in this role, the Federal Housing Finance Agency promotes the safety
and soundness of the GSEs, supports housing finance and affordable housing, and
supports a stable and liquid mortgage market;
WHEREAS, the GSEs have been investors in Mortgage Revenue Bonds issued by
housing finance agencies (HFAs) and/or liquidity providers to HFAs, consistent
with the

 

--------------------------------------------------------------------------------

 

GSEs’ mission, and the GSEs’ and HFAs’ common purpose of supporting credit needs
in affordable housing;
WHEREAS, the National Council of State Housing Finance Agencies and the National
Association of Local Housing Finance Agencies requested assistance from the U.S.
Department of the Treasury to meet their funding needs to continue support of
their affordable housing mission during this period of disruption in housing
finance and that request has been supported by market developments; and
WHEREAS, Treasury requested FHFA and the GSEs to help Treasury to design and
implement the programs set out in this Memorandum of Understanding to assist the
HFAs. In helping in the design, implementation and execution of these programs,
the GSEs are not acting as intermediaries between Treasury and the HFAs, made no
introductions between those parties and are not expected to perform the
traditional functions of a securities dealer.
NOW THEREFORE, the parties to this Memorandum of Understanding do hereby agree
to affirmatively respond to this request for assistance in the manner set forth
in this Memorandum of Understanding. The parties further declare the following
understandings regarding the form, purpose, risk-sharing, and structure of this
assistance:
THAT, the transaction structure set forth in this Memorandum of Understanding is
consistent with both law and congressional purpose, including that it provides
meaningful furtherance of the GSEs’ and HFAs’ affordable housing missions;
THAT, the financing structure set forth in this Memorandum of Understanding
responds to the unique and exigent circumstances being addressed and is limited
by time and scope to addressing such circumstances. The goal of the financing
structure is to establish a mechanism on commercially reasonable terms for the
GSEs at a time that current market conditions make exact prediction of ultimate
market response and market developments inherently uncertain;
THAT, the pricing of each liquidity facility provided to and Mortgage Revenue
Bond purchased from an HFA will reflect the risk of the bond indenture supported
by the facility or under which bonds are issued, with such assessment being
based on the combined judgment of the parties hereto, based upon input received
from market indicators, third-party investment advisors, and internal credit
evaluation done by the GSEs;
THAT, the U.S. Department of the Treasury will take a first loss position with
respect to the aggregate of HFA Initiative losses, and the GSEs will take a
second loss position intended to be consistent with the highest investment grade
credit exposure, based on the risk assessment described above;

2

--------------------------------------------------------------------------------

 

THAT, the financing set forth herein provides temporary financing to HFAs in
order to provide them time to seek more permanent, market-based financing
structures while avoiding further near-term disruption to their affordable
housing missions;
THAT, the GSEs are completing a detailed execution plan intended to achieve the
result of implementing these programs with all eligible HFAs by December 31,
2009, which plan will be submitted to FHFA for its review and consideration;
and,
THAT, the participation of the GSEs in this endeavor affords the U.S. Department
of Treasury access to the GSEs’ operational capacity and financing expertise
while creating an opportunity for the HFAs to establish alternative secondary
market funding sources including, but not limited to, the GSEs’ mortgage
securitization programs.
1.      Introduction.
A.      This Memorandum of Understanding (MOU) among the Department of the
Treasury (Treasury), the Federal Housing Finance Agency (FHFA), the Federal
National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage
Corporation (Freddie Mac) sets forth the mutual understandings and intentions of
the parties with respect to the proposal for Treasury to purchase certain GSE
Securities and GSE Obligations pursuant to Section 304(g) of the Federal
National Mortgage Association Charter Act (12 U.S.C. 1719(g)) and Section 306(l)
of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1455(l)). The
foregoing recitals are incorporated in this MOU as if fully set forth herein.
B.      Consistent with this authority, Treasury intends to purchase GSE
Securities and GSE Obligations to facilitate financing for state and local
housing finance agencies to serve homebuyers and low income renters (the “HFA
Initiative”).
C.      HFAs, the National Council of State Housing Agencies and the National
Association of Local Housing Finance Agencies requested assistance from Treasury
to meet their missions to provide affordable financing for single family and
multifamily housing in light of the financial difficulties facing the nation.
Treasury requested that FHFA and the GSEs design and implement the HFA
Initiative. Each of the GSEs has briefed FHFA on its plans to conduct the HFA
Initiative in a manner that is consistent with the goals of being both
commercially reasonable and safe and sound. Therefore, FHFA, as conservator of
Fannie Mae and Freddie Mac, directs the GSEs to participate in the HFA
Initiative on a basis that is consistent with the goals of being commercially
reasonable and safe and sound. This directive constitutes approval under the
FHFA delegation of authorities and related instructions to the GSEs’ Boards of
Directors.
D.      The parties hereto recognize that the intentions expressed in Section 11
are a principal concern taken into consideration with respect to whether the
activities of the GSEs described in this MOU are commercially reasonable.

3

--------------------------------------------------------------------------------

 

E.      Fannie Mae and Freddie Mac each agrees with the tenets and statements of
this MOU and will undertake this HFA Initiative as set forth herein.
F.      The GSEs and Treasury acknowledge that:
     (1)      The GSEs will not act as an intermediary to bring the HFAs and
Treasury together pursuant to any program described in this MOU.
     (2)      The programs described in this MOU and any transactions executed
pursuant to these programs are isolated programs from the GSEs’ ordinary
activities in tax-exempt securities.
     (3)      The GSEs are not registered as dealers in tax-exempt securities;
the parties further acknowledge that the GSEs will not provide price quotes to
Treasury or otherwise act in a manner with Treasury that would be akin to a
dealer-customer relationship.
     (4)      Any amounts paid to the GSEs are intended to compensate them for
(i) certain credit risk that they will bear and (ii) administrative services
that they will provide.
     (5)      Interest on any Bank Bond acquired pursuant to the Temporary
Credit and Liquidity Facility Program will be earned entirely by Treasury as a
participant in that facility, less administrative fees and other fees and
expenses to which the GSEs are entitled.
2.      Definitions.
Unless otherwise defined herein, terms used in this MOU or in the Appendices to
this MOU, which are integral parts of this MOU, are used as defined in
Appendix G, “Definitions.”
3.      Purchase of GSE Securities Backed by New Issue Bonds.
A.      It is the intention of the parties hereto that Treasury will purchase
GSE Securities backed by (a) new tax-exempt and certain taxable single family
bonds and (b) certain multifamily bonds backed by pools of Secured Multifamily
Loans (collectively, the “New Issue Bonds”) issued by HFAs (the “New Issue Bond
Program”). Purchase by Treasury of any and all such GSE Securities must occur by
December 31, 2009 (see Section 6 below).
B.      It is the intention of the parties hereto that the GSEs shall jointly
initiate, administer and carry out the New Issue Bond Program during the
Acquisition Period for the acquisition and securitization of New Issue Bonds.
The GSEs shall issue GSE Securities backed by New Issue Bonds acquired during
the Acquisition Period. Each GSE will acquire and securitize 50% of each HFA’s
New Issue Bond production, on a

4

--------------------------------------------------------------------------------

 

pro rata basis, that qualifies under the terms and conditions of the New Issue
Bond Program.
C.      The GSE Securities eligible for purchase by Treasury under this Program
are described in Appendix A, “GSE Securities Backed by New Issue Bonds.” The
Program Limits under this Program are set forth in Appendix E, “New Issue Bond
Program, and Temporary Credit and Liquidity Facility Program Limitations.”
4.      Purchase of GSE Obligations Backed by Multifamily Credit Enhanced Bonds.
A.      It is the intention of the parties hereto that Treasury will purchase
GSE Obligations in the form of new tax-exempt and certain taxable project-based
multifamily bonds (“Multifamily Credit Enhanced Bonds”) issued by HFAs that are
credit enhanced by the GSEs (the “Multifamily Credit Enhancement Program”).
Purchase by Treasury of any and all such GSE Obligations must occur by
December 31, 2009 (see Section 6 below).
B.      It is the intention of the parties hereto that each GSE shall administer
and carry out separately, as each traditionally does in connection with
multifamily bonds, this Program during the Acquisition Period for the credit
enhancement of Multifamily Credit Enhanced Bonds issued by HFAs. In the ordinary
course of their business and in accordance with their customary policies,
practices and procedures, the GSEs will compete with each other to provide
direct-pay credit enhancement for the multifamily bonds under this Program.
C.      The Multifamily Credit Enhanced Bonds which are eligible for purchase by
Treasury under this Program are described in Appendix B, “Multifamily Credit
Enhanced Bonds.”
5.      Purchase of Participation Interests in Temporary Credit and Liquidity
Facilities for Existing Variable Rate Demand Obligations (VRDOs).
A.      It is the intention of the parties hereto that Treasury will purchase
GSE Obligations evidenced by participation interests in temporary credit and
liquidity facilities issued by the GSEs in support of existing HFA VRDOs
originally issued to finance single family and/or certain multifamily mortgage
loans. GSEs shall issue temporary credit and liquidity facilities to support
such VRDOs (the “Temporary Credit and Liquidity Facility Program”). Purchase by
Treasury of any and all such participation interests shall be conclusively
evidenced by the execution of Participation Agreements on or before December 31,
2009 (see Section 6 below). The Participation Agreements will set forth (i) the
timing for the funding of the participation interests, (ii) the circumstances,
timing and mechanism for the GSEs to deliver Bank Bonds to Treasury in the form
of GSE Securities and (iii) the requisite fees to Treasury.

5

--------------------------------------------------------------------------------

 

B.      It is the intention of the parties hereto that the GSEs shall jointly
initiate, administer and carry out the Temporary Credit and Liquidity Facility
Program, under which the GSEs will enter into agreements with HFAs to provide
credit enhancement and liquidity support for certain existing and currently
outstanding VRDOs issued by HFAs. The Temporary Credit and Liquidity Facility
(each, a “Temporary Credit and Liquidity Facility” or “TCLF”) relating to each
series of VRDOs participating in this Program will be shared equally between the
GSEs, with each GSE being severally liable to existing bondholders for 50%, on a
pro rata basis, of required credit support payments and required liquidity
support payments.
C.      The participation interests in Temporary Credit and Liquidity Facilities
eligible for purchase by Treasury under this Program are described in
Appendix C, “GSE Obligations Backed by Bank Bonds Acquired with Liquidity
Advances under Temporary Credit and Liquidity Facilities.” The Program Limits
under this Program are set forth in Appendix E.
6.      Acquisition Period Deliverables.
A.      New Issue Bond Program. A transaction under the New Issue Bond Program
will be considered to have occurred on December 31, 2009 if each of the
following requirements is satisfied:
       (1)      On or before December 31, 2009, the following fully executed
documents are delivered: (i) the New Issue Bond Program Agreements between the
GSEs and Treasury and (ii) Placement Agreements between the GSEs and the HFAs,
with set terms and pricing (collectively, the “Principal New Issue Bond Closing
Documents”);
       (2)      Each of the Principal New Issue Bond Closing Documents is an
irrevocable, unconditional, mutually binding contract which requires the
settlement of that transactions on or before January 29, 2010; and
       (3)      Each of the transactions set out in the Principal New Issue Bond
Closing Documents settles in full on or before January 29, 2010.
B.      Multifamily Credit Enhancement Program. A transaction under the
Multifamily Credit Enhancement Program will be considered to have occurred on
December 31, 2009 if each of the following requirements is satisfied:
       (1)      On or before the December 31, 2009, the following fully executed
documents are delivered: (i) the Placement Agreements between the HFAs and
Treasury, with set pricing and terms, with settlement of the related Bonds to be
a date on or prior to the end of the Acquisition Period and (ii) the GSE credit
enhancement in the GSEs’ standard forms (collectively, the “Principal
Multifamily Bond Closing Documents”);

6

--------------------------------------------------------------------------------

 

       (2)      Each of the Principal Multifamily Bond Closing Documents is an
irrevocable, unconditional, mutually binding contract which requires the
settlement of that transactions on or before January 29, 2010; and
       (3)      Each of the transactions set out in the Principal Multifamily
Closing Documents settles in full on or before January 29, 2010.
C.      Temporary Credit and Liquidity Facility Program. A transaction under the
Temporary Credit and Liquidity Facility Program will be considered to have
occurred on December 31, 2009 if each of the following requirements is
satisfied:
       (1)      On or before December 31, 2009, the bond trustee under the
indenture for the VRDOs has issued a notice of tender to the holders of the
VRDOs in connection with the substitution of liquidity and credit enhancement as
contemplated under the Temporary Credit and Liquidity Facility Program and the
tender date is not later than January 29, 2010;
       (2)      On or before December 31, 2009, the following fully executed
documents are delivered: (i) the Participation Agreements between the GSEs and
Treasury, (ii) the TCLFs (to be executed on at the settlement date set forth in
the applicable Escrow Agreement and to become effective on the tender date set
out in paragraph (1) above, (iii) the Reimbursement Agreements between the GSEs
and the HFAs and (iv) the Escrow Agreement for the foregoing documents (the
“Escrow Agreement”), with set pricing and terms, with no termination provisions
including material market events and material calamities (collectively, the
“Principal TCLF Closing Documents”);
       (3)      Each of the Principal TCLF Closing Documents is an irrevocable,
unconditional, mutually binding contract which requires the settlement of that
transaction on or before January 29, 2010; and
       (4)      Each of the transactions set out in the Principal TCLF Closing
Documents settles in full on or before January 29, 2010.
7.      Loss Sharing.
A.      Loss Sharing under New Issue Bond Program and under the Temporary Credit
and Liquidity Facility Program. Each GSE, acting separately, will share Program
Losses with Treasury realized under the New Issue Bond Program and under the
Temporary Credit and Liquidity Facility Program as described in Appendix D,
“Loss Sharing.” A GSE will only share in Program Losses realized on the New
Issue Bonds backing the GSE Securities issued by that GSE and in Program Losses
realized on that GSE’s portion of the Temporary Credit and Liquidity Facilities.
Neither GSE will share in Program Losses allocable to the other GSE.
B.      No Loss Sharing under Multifamily Credit Enhancement Program. Because a
GSE will provide separate credit enhancement for Multifamily Credit Enhanced
Bonds as

7

--------------------------------------------------------------------------------

 

described in Section 4 above and in Appendix B, no additional loss sharing under
this Section will apply with respect to the Multifamily Credit Enhancement
Program.
8.      Decision Control.
With respect to (i) any Eligible Bond held by a Trust represented by a GSE
Security held by or behalf of Treasury and (ii) any Temporary Credit and
Liquidity Facility, Treasury shall be entitled to exercise Decision Control so
long as the Crossover Date has not occurred and the GSEs shall be entitled to
exercise Decision Control on and after the Crossover Date. The identity of the
party having Decision Control shall not affect the obligations of Treasury under
any Participation Agreement or any New Issue Bond Program Agreement. Treasury
agrees to consult with the GSEs, and the GSEs agree to make recommendations to
Treasury with respect to the issues for which Decision Control by Treasury is to
be exercised. Conversely, the GSEs agree to consult with Treasury, and Treasury
agrees to make recommendations to the GSEs with respect to the issues for which
Decision Control by the GSEs is to be exercised. Notwithstanding the foregoing,
the party having Decision Control shall have the unilateral right to make
decisions regarding the exercise of bondholder rights in respect of the Eligible
Bonds.
9.      Information Sharing.
A.      FHFA understands and agrees that Fannie Mae and Freddie Mac shall share
such information and data as are necessary for the administration of the New
Issue Bond Program and the Temporary Credit and Liquidity Facility Program.
B.      Fannie Mae shall provide to Freddie Mac such information and data that
is required in the administration of the New Issue Bond Program and the
Temporary Credit and Liquidity Facility Program; provided, however, that Fannie
Mae shall not be obligated to provide any information that may be confidential
or proprietary. Fannie Mae shall not be required to provide to Freddie Mac any
information in the administration of the Multifamily Credit Enhancement Program.
C.      Fannie Mae shall take appropriate steps to maintain the confidentiality
of any information or data provided by Freddie Mac. Fannie Mae shall not use any
information or data received pursuant to this MOU for any purpose other than the
administration of the New Issue Bond Program and the Temporary Credit and
Liquidity Facility Program.
D.      Freddie Mac shall provide to Fannie Mae such information and data that
is required in the administration of the New Issue Bond Program and the
Temporary Credit and Liquidity Facility Program; provided however, that Freddie
Mac shall not be obligated to provide any information that may be confidential
or proprietary. Freddie Mac shall not be required to provide to Fannie Mae any
information in the administration of the Multifamily Credit Enhancement Program.
E.      Freddie Mac shall take appropriate steps to maintain the confidentiality
of any information or data provided by Fannie Mae. Freddie Mac shall not use any
information

8

--------------------------------------------------------------------------------

 

or data received pursuant to this MOU for any purpose other than the
administration of the New Issue Bond Program and the Temporary Credit and
Liquidity Facility Program.
F.      Each GSE shall provide or cause to be provided to Treasury the reports
and other information agreed to between Treasury and the GSEs. Treasury
understands and agrees that the GSEs will be dependent upon the receipt of
information from HFAs, bond indenture trustees and other third parties in order
to carry out their reporting obligations under this provision. Accordingly,
neither GSE shall be responsible for lapses, gaps, inaccuracies and other
failures to report information to Treasury required by this provision for any
reason beyond its control.
10.      GSE Securities Not to Trade.
Treasury agrees that it will not trade, sell, exchange, securitize, donate or
give to any third party or pledge, hypothecate or otherwise transfer any
interests in or to any of the GSE Securities acquired by it from time to time
pursuant to or as contemplated by this MOU. Excluded from this limitation is the
use by Treasury of custodians to hold any GSE Security on behalf of Treasury. At
Treasury’s request, the issuing GSE will dissolve any GSE Security and
simultaneously deliver the underlying Bonds to Treasury’s designee in connection
with the sale of such underlying Bonds. At no time will Treasury have physical
possession of the underlying Bonds. The GSEs will charge commercially reasonable
fees to unwind any GSE Security; such fees, as set forth in Appendix F, “Pricing
Schedule,” shall be netted from sales proceeds.
11.      Tax Considerations.
A.      It is the intent of each of the parties hereto that:
     (1)      For federal income tax purposes, the GSEs will not be treated as
beneficial owners of any tax-exempt obligations associated with their
participation in any Program contemplated by this MOU.
     (2)      For federal income tax purposes, a GSE’s participation in any
Program (i) will not cause the GSE to be considered a dealer in tax-exempt
obligations and (ii) will not be considered direct or indirect evidence of a
purpose to incur or continue indebtedness to purchase or carry tax-exempt
obligations.
     (3)      For federal income tax purposes (i) any Trust created pursuant to
this MOU shall be treated as a disregarded entity or grantor trust,
(ii) Treasury shall be treated as the sole beneficial owner of the assets of
such Trust and (iii) any amounts payable to the GSEs from the income or assets
of such Trust shall be treated as reasonable compensation for services rendered
and shall not be treated as a coupon-stripping transaction.
B.      The parties acknowledge that the statements in this Section concerning
the intent of the parties (as well as related statements in the Appendices), the
statements of fact in

9

--------------------------------------------------------------------------------

 

the WHEREAS clauses above, and the statements of fact in Section 1(F) above are
not legal determinations binding on the Internal Revenue Service or any party.
12.      Interpretation.
Each of the parties acknowledges that it and its counsel have participated in
the drafting and revision of this MOU. Accordingly, the parties agree that any
rule of construction which disfavors the drafting party shall not apply in the
interpretation of this MOU.
13.      Governing Law.
This MOU shall be governed by, and interpreted in accordance with, Federal law,
not the law of any state or locality. To the extent that a court looks to the
laws of any state to determine or define the Federal law, it is the intention of
the parties to this MOU that such court shall look only to the laws of the State
of New York without regard to the rules of conflicts of laws.
14.      Notices.
All notices, directions, certificates or other communications hereunder shall be
sent by certified or registered mail, return receipt requested, or by overnight
courier addressed to the appropriate notice address set forth below. Any such
notice, certificate or communication shall be deemed to have been given as of
the date of actual delivery or the date of failure to deliver by reason of
refusal to accept delivery or changed address of which no notice was given
pursuant to this Section. Any of the parties hereto may, by such notice
described above, designate any further or different address to which subsequent
notices, certificates or other communications shall be sent without any
requirement of execution of any amendment to this MOU. The notice addresses are
as follows:
 

         
To Treasury:
  Department of the Treasury     1500 Pennsylvania Avenue, N.W.    
Washington, D.C. 20220     Attention:   Fiscal Assistant Secretary         re:
Housing Finance Agencies Initiative                   and              
Attention:   Assistant General Counsel         (Banking and Finance)         re:
Housing Finance Agencies Initiative

10

--------------------------------------------------------------------------------

 

         
To FHFA:
  Federal Housing Finance Agency     1700 G Street, N.W.     Washington, D.C.
20552     Attention:   David J. Pearl         Executive Advisor         Division
of Enterprise Regulation                   and               Attention:   Kevin
Sheehan         Attorney         Office of General Counsel                    
To Fannie Mae:
  Fannie Mae     3900 Wisconsin Avenue, N.W.     Washington, D.C. 20016    
Attention:   Carl W. Riedy, Jr.         Vice President for Public        
Entities Channel, Housing         and Community Development                  
and               Attention:   Barbara Ann Frouman         Vice President and  
      Deputy General Counsel, Housing and
Community Development                    
To Freddie Mac:
  Freddie Mac     1551 Park Run Drive     Mail Stop D4F     McLean, Virginia
22102     Attention:   Mark D. Hanson         Vice President Mortgage Funding  
                and               Freddie Mac         8200 Jones Branch Drive  
  Mail Stop 210     McLean, Virginia 22102     Attention:   Joshua L. Schonfeld
        Associate General Counsel

11

--------------------------------------------------------------------------------

 

or at such other address as the addressee may hereafter specify for the purpose
in a notice to the other party specifically captioned “Notice of Change of
Address.”
15.      Severability.
Any provision of this MOU that is determined to be prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this MOU, and no such prohibition or unenforceability in any
jurisdiction shall invalidate such provision in any other jurisdiction.
16.      Expenses.
Each party to this MOU shall bear its own expenses in connection with the
preparation, negotiation and execution of this MOU and all costs associated with
the sharing of information hereunder, and neither party shall be liable to the
other party for such expenses.
17.      Operation of MOU.
A.      This MOU is not a Federal procurement contract and is, therefore, not
subject to the provisions of the Federal Property and Administrative Services
Act (41 U.S.C. §§ 251-60), the Federal Acquisition Regulations (48 CFR
Chapter 1) or any other Federal procurement law.
B.      This MOU expresses the intent of the parties to act cooperatively in
carrying out this MOU and is not intended to be a fiscal or funds obligation
document and, accordingly, does not obligate funds, personnel, services or other
resources of any party.
C.      The parties hereto intend to negotiate in good faith, and execute
mutually acceptable definitive binding written agreements and documents for
implementing the HFA Initiative including, but not limited to, the Principal New
Issue Bond Closing Documents, the Principal Multifamily Bond Closing Documents
and the Principal TCLF Closing Documents, all as set forth in Section 6 of this
MOU (collectively, the “Definitive Documentation”). The Definitive Documentation
shall incorporate the terms and conditions set forth in this MOU, and such other
terms and conditions agreed to among the parties hereto. The implementation by
the parties hereto of the intentions articulated by this MOU, so as to make it a
binding agreement of the parties with respect to the HFA Initiative, is wholly
subject to the execution of the Definitive Documentation. The execution of the
Definitive Documentation is subject to (i) the provision by Treasury or the
Internal Revenue Service of guidance, including a closing agreement, in a form
mutually agreeable to the parties hereto, on the tax consequences of the HFA
Initiative for the GSEs and (ii) revision of the terms and conditions set forth
herein, as needed, to avoid material adverse tax consequences for the GSEs.

12

--------------------------------------------------------------------------------

 

D.      Each GSE shall be responsible only for the performance by it of its
obligations under this MOU and under any transaction, GSE Security or other
undertaking made pursuant to this MOU, as qualified by subsection (C) above.
Nothing in this MOU shall make or be deemed to make a GSE responsible for the
obligations of the other GSE under this MOU or under any transaction, GSE
Security or other specific undertaking made pursuant to this MOU.
18.      Third Party Rights.
This MOU does not confer any rights, benefits, remedies or claims, either at law
or in equity, on any person not a party to this MOU including, but not limited
to, the HFAs.
19.      Term of this Agreement.
The provisions of this MOU shall be effective from the date of execution and
delivery of this MOU by the parties hereto and any such provisions shall be
superceded upon the execution and delivery of the applicable Definitive
Documentation for such transaction. Notwithstanding such supercession, the
recitations and Section 1 (“Introduction,” including the FHFA direction to the
GSEs) and Section 9 (“Information Sharing,” related to sharing and
confidentiality of information), as set forth in this MOU, shall remain
unaffected.
20.      Counterparts.
This MOU may be executed in counterparts by the parties, each counterpart shall
be considered an original and all counterparts shall constitute one and the same
instrument.
21.      Amendment and Termination.
A.      The parties to this MOU may from time to time amend this MOU in writing
and such amendments, when executed by all parties, shall then become a part of
this MOU.
B.      The agreements contained herein governing the sharing and use of
information and data shall continue in effect following termination.
22.      Closings.
A.      Each of Treasury, FHFA, Freddie Mac and Fannie Mae will designate
personnel to review, approve and/or execute documents in connection with various
closings contemplated under the HFA Initiative.
B.      Each of the parties hereto shall promptly notify the other parties of
any further issues and related clarifications necessary under this MOU; each of
the parties hereto shall cooperate to effectuate any related amendments pursuant
to the provisions of Section 21 hereto.

13

--------------------------------------------------------------------------------

 

C.      The parties hereto will not be obligated to close any transactions for
which the other parties hereto have not executed (i) with respect to the New
Issue Bond Program and Multifamily Credit Enhancement Program, the New Issue
Bond Program Agreements and (ii) with respect to the Temporary Credit and
Liquidity Facility Program, the Participation Agreement and the Escrow
Agreement, if any.
23.      Effective Date.
This MOU shall become effective on its execution date.
[remainder of page intentionally left blank]

14

--------------------------------------------------------------------------------

 

              FOR DEPARTMENT OF THE TREASURY   FOR FEDERAL HOUSING FINANCE
AGENCY, as Conservator                             By:   /s/ Michael S. Barr  
By:   /s/ Edward J. DeMarco                   Michael S. Barr       Edward J.
DeMarco     Assistant Secretary of the Treasury       Acting Director    
Department of the Treasury       Federal Housing Finance Agency              
Date:   October 19, 2009   Date:   October 19, 2009                            
              FOR FANNIE MAE   FOR FREDDIE MAC                             By:  
/s/ Michael J. Williams   By:   /s/ Charles E. Haldeman, Jr.                  
Michael J. Williams       Charles E. Haldeman, Jr.     President and       Chief
Executive Officer     Chief Executive Officer       Freddie Mac     Fannie Mae  
                    Date:   October 19, 2009   Date:   October 19, 2009

 

15

--------------------------------------------------------------------------------

 

Appendix A
GSE Securities Backed by New Issue Bonds
1.      General Structure of New Issue Bond Program.
A.      New Issue Bonds. Under the New Issue Bond Program, the GSEs will swap
GSE Securities for Eligible Bonds and deliver such GSE Securities to Treasury
pursuant to Placement Agreements with the HFAs. Simultaneously, Treasury will
purchase the related GSE Securities under the New Issue Bond Program and remit
the purchase prices to the HFAs pursuant to New Issue Bond Program Agreements
with the GSEs.
B.      GSE Securities. Each GSE will acquire 50% of the Eligible Bonds of a
series of bonds issued by an HFA (on a pro rata basis with respect to each
series) and securitize the Eligible Bonds so acquired into GSE Securities
described in Section 6 below for purchase by Treasury. Each GSE Security will be
issued by the respective GSE. Each GSE Security may be issued as a single class.
C.      Partial Guarantee. The GSE issuing the GSE Security will provide a
Partial Guarantee as a means of documenting its loss sharing obligations to
Treasury regarding that GSE Security as discussed in Appendix D, “Loss Sharing.”
D.      Ownership Vests with Treasury. Pursuant to the terms of a New Issue Bond
Program Agreement, Treasury or its nominee will immediately acquire ownership of
the GSE Securities. It is the intent of each of the parties to the MOU that the
GSEs will not be treated as beneficial owners of the related New Issue Bonds at
any time for federal income tax or any other purposes (see Section 11 of the
MOU).
2.      Eligible Bonds.
New Issue Bonds eligible for acquisition under the New Issue Bond Program
(“Eligible Bonds”) must satisfy the following requirements:
A.      Tax-Exempt Status. The interest payable on the New Issue Bonds must be
exempt from inclusion in gross income for federal income tax purposes, except as
set forth in this Paragraph. New Issue Bonds bearing taxable interest and which
otherwise meet the use of proceeds conditions of Paragraph (B) below shall be
Eligible Bonds only if such bonds are required to be issued on a taxable basis
due to volume cap allocation limitations of the HFAs. Notwithstanding the
foregoing, the HFAs must apply their current volume cap allocations to this
Program or the Multifamily Credit Enhancement Program unless already formally
allocated and use their reasonable best efforts to secure additional volume cap
allocations as needed for the issuance of bonds under such Programs. The maximum
amount of Eligible Bonds that an HFA may issue under such Programs are set forth
in Appendix E, “New Issue Bond Program, and Temporary Credit and Liquidity
Facility Program Limitations.”

A-1

--------------------------------------------------------------------------------

 

B.      Use of Proceeds. Proceeds of the New Issue Bonds must be used by the HFA
to:
     (i)      acquire and finance the holding of single family loans and Secured
Multifamily Loans related to New Issue Bonds which loans are either newly
originated or refinanced, so long as all such loans are eligible to be financed
on a tax-exempt basis under applicable federal income tax law (“Eligible
Loans”); or
     (ii)      refund, as fixed rate bonds, any of the HFA’s VRDOs or other
variable rate debt including, but not limited to, auction rate securities issued
and outstanding prior to the commencement of the Acquisition Period, so long as
such bonds were, in turn, issued to acquire and finance the holding of Eligible
Loans; provided, however, that not more than 30% of the net proceeds of the
Eligible Bonds of an issue acquired under this Program may be used for the
purpose set out in this clause (ii).
Proceeds may also be spent to fund reasonably required reserves and pay costs of
issuance of the bonds in accordance with the requirements and limitations of
applicable tax law.
C.      Requirements During Acquisition Period. In order to qualify under this
Program, the document delivery requirements set forth in Section 6 of the MOU
with respect to Eligible Bonds must be met on or prior to December 31, 2009.
D.      Minimum Rating. The Eligible Bonds must have a long-term credit rating
of ‘Baa3’/’BBB-’ or better. To the extent that this minimum rating threshold is
not maintained at any time any proceeds of the Eligible Bonds are held in an
Escrow, the New Issue Bonds will be redeemed to the extent of any funds held in
such Escrow.
E.      Term Bonds. Only bonds with stated maturity dates of not less than
10 years after the date of issuance of the bonds (“Term Bonds”) are eligible
under the New Issue Bond Program. HFAs will be required to offer earlier
maturities of the issue (“Serial Bonds”) for public or private sale to investors
in accordance with standard bond underwriting practices to settle within one (1)
year of the end of the Acquisition Period. The Term Bonds may not be more than
60% of the overall issue measured by principal at the time of issuance of the
Serial Bonds (the “Serial Bond Ratio Requirement”). The exact delineation of the
maturity dates of Eligible Bonds will be open to adjustment as circumstances
require; however, in all instances, the maturities must be structured in a
similar manner as other HFA issuances under the applicable indenture so as to
assure prudent fiscal management of the underlying trust estate held under the
indenture. The Term Bond and Serial Bonds of the same issue must be equal in
rights to payment and security under the indenture under which they are issued.
The maturity of the Eligible Bonds shall be a maximum of 32 years. If
multifamily bonds are issued under a Permitted Indenture pursuant to Paragraph 9
below, HFAs will not be required to offer Serial Bonds in such issuance.

A-2

--------------------------------------------------------------------------------

 

F.      Issuance Limitation. The aggregate net proceeds of the Eligible Bonds
and all related Serial Bonds (whether issued simultaneously with the Term Bonds
or on a delayed issuance basis as provided below), sized in accordance with the
Serial Bond Ratio Requirement, may not exceed the reasonable expectations
requirement applicable to tax-exempt mortgage revenue bonds.
G.      Serial Bond Issuances. The HFA may issue Serial Bonds using one or both
of the following options:
     (i)      Simultaneous Issuance. The HFA may issue Serial Bonds
simultaneously with the Eligible Bonds; and/or
     (ii)      Delayed Issuance. The HFA may issue Serial Bonds from time to
time on or before December 31, 2010; provided, however, that the HFA may not
issue Serial Bonds more than three times during this period. For purposes of the
issuance limitation, the issuance of Serial Bonds simultaneously with the Term
Bonds does not count.
H.      Serial Bond Ratio Requirement Not Satisfied at Eligible Bond Issuance.
The Serial Bond Ratio Requirement need not be met at the time of issuance of the
Eligible Bonds if a required amount of the net proceeds of the Eligible Bonds is
set aside with the trustee of the Eligible Bonds in an escrow pending the
delayed issuance of Serial Bonds (“Escrow”). Any issuance effected pursuant to
the preceding sentence must be completed by an HFA by the end of the Acquisition
Period. In addition, each HFA may effect only one such issuance. The amount of
Term Bond proceeds which must be escrowed will be the result of (i) multiplying
the amount of the net proceeds of the Serial Bonds (if any) issued
simultaneously with the Eligible Bonds by 1.5, and (ii) subtracting the amount
calculated in (i) from the net proceeds of the Eligible Bonds. Such escrow
limitation shall be administered by the bond indenture trustee.
I.      Escrow Requirement. If Term Bond proceeds must be set aside in an Escrow
(“Escrowed Proceeds”), the Escrow must be established as a special,
non-commingled fund within the trust estate of the indenture under which the
Eligible Bonds were issued to be administered by the bond indenture trustee.
J.      Investment of Escrowed Proceeds. The Escrowed Proceeds must be invested
in government or agency securities rated in the highest short-term rating
category (‘A-1’/’P-1’) (“Permitted Escrow Investments”), with a maturity date of
one (1) year or less, anticipated to match the anticipated draw down of funds
from escrow by the HFAs. The Permitted Escrow Investments must be pledged
exclusively to the repayment of the Eligible Bonds.
K.      Release of Escrowed Proceeds from Escrow. If and when an HFA issues
Serial Bonds on a delayed issuance basis (each, a “Reset Date”) and delivers to
the bond indenture trustee and the GSEs a related certificate of Serial Bond
issuance and calculation of the release amount pursuant to the Serial Bond Ratio
Requirement,

A-3

--------------------------------------------------------------------------------

 

Escrowed Proceeds will be released simultaneously from the Escrow to such HFA in
an amount equal to the net proceeds of the Serial Bonds then issued multiplied
by 1.5.
L.      Unreleased Escrow Proceeds; Redemption of Eligible Bonds. If any
Escrowed Proceeds remain in the Escrow on January 1, 2011, such remaining
Escrowed Proceeds must be used to redeem outstanding Eligible Bonds at par on
the next available redemption date under the indenture; provided, however, that
the redemption price must be adjusted for any unamortized premium or discount
prorated to the relative principal amount of the Eligible Bonds being redeemed
for that reason.
3.      HFA Covenants.
Each HFA participating under this Program shall covenant that it shall:
     (1)      Apply volume cap allocations as set forth in Paragraph 2(A) above;
     (2)      Not have any lock-out provisions or premium for the tender or
redemption of the Eligible Bonds, and adjust tender or redemption price for any
unamortized premium or discount;
     (3)      Not issue new bonds on a variable rate demand, adjustable rate or
auction rate basis under the same indenture pursuant to which the supported
Eligible Bonds are issued other than as permitted under Paragraph 4(D) below;
     (4)      Not allow any money, mortgage loans or other assets to be
withdrawn from the indenture (other than for scheduled debt service on Bonds
issued under that indenture and the costs of administering the mortgage loan
program and the bond financing), or otherwise pledged or hypothecated, unless
such funds are used to redeem Eligible Bonds associated with the related
indenture; and
     (5)      With respect to the purchase, origination, enforcement and
servicing of mortgage loans and mortgage-backed securities (“MBS”):
          (a)      originate or cause to be originated, mortgage loans and
purchase, or cause to be purchased, MBS in a manner consistent with applicable
state law, the indenture and any supplements thereto, and such other related
documents by which the HFA is bound;
          (b)      cause all mortgage loans to be serviced pursuant to the
servicing requirements of the HFA, Fannie Mae and Freddie Mac, as applicable, or
any other party providing credit support in respect of the Secured Multifamily
Loans;

A-4

--------------------------------------------------------------------------------

 

          (c)      diligently take all steps necessary or desirable to enforce
all terms of the mortgage loans, MBS, loan program documents and all such other
documents evidencing obligations to the HFA; and
          (d)      diligently take all actions consistent with sound mortgage
loan origination, purchase and servicing practices and principles as may be
necessary to receive and collect sufficient revenues to pay debt service when
due on the bonds.
4.      Interest on Eligible Bonds.
A.      Fixed Rates. Except as provided for Eligible Bonds with Escrowed
Proceeds as set out in Paragraph (D) below and as otherwise provided in this
Paragraph, New Issue Bonds must bear fixed rates of interest, with no stepped
coupons.
B.      Interest Rates Set by Reference to an Index Plus Spread. The interest
rate per annum on an Eligible Bond and the Reset Rate for each tranche of
Escrowed Proceeds of an Eligible Bond released from Escrow will be the sum of
(i) the 10-year Constant Maturity Treasury (“10-Year CMT”) as reported by
Treasury as of the close of business on the day immediately before the day the
interest rate is established and (ii) a Spread determined as set out in
Paragraph (C) below for such Eligible Bond or tranche thereof. The 10-Year CMT
will be established by reference to the Daily Treasury Yield Curve Rates
published by Treasury, currently available on its website at:
http://www/ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml.
C.      Spread. The Spread for an Eligible Bond will be determined as set forth
in Appendix F, “Pricing Schedule.” The Spread for any tranche of Escrowed
Proceeds of an Eligible Bond released from Escrow will be determined at the time
of release from Escrow as provided in Appendix F.
D.      Eligible Bonds with Escrowed Proceeds.
     (1)      Interest Rate — Generally. If any of the proceeds of an Eligible
Bond must be escrowed because the Serial Bond Ratio Requirement was not
satisfied, then the Eligible Bond will bear interest as follows:
          (a)      The portion of principal of the Eligible Bond, if any, that
was not set aside in Escrow on the date of issuance of the Eligible Bond will
bear interest as set out in Paragraphs (B) and (C) above. The remaining
principal of the Eligible Bond (that is, the amount that was set aside in
Escrow) will bear interest at the Variable Rate as set out in (2) below from the
date of issue until released from Escrow or used to redeem any portion of the
Eligible Bond; and

A-5

--------------------------------------------------------------------------------

 

          (b)      For each tranche of the Escrowed Proceeds released from
Escrow, the principal of such tranche will bear interest beginning two
(2) months after its Reset Date to the date of Eligible Bond maturity, at the
Reset Rate as set out in (3) below.
     (2)      Variable Rate. A floating bond equivalent rate based on the 28-day
Treasury Bill discount rate.
     (3)      Reset Rate. At the time of issue of the Eligible Bond, the HFA
will select the Reset Rate method to apply to the Eligible Bond as follows:
          (a)      The Reset Rate may be a single fixed rate of interest which
applies to all tranches of the Eligible Bond determined in accordance with
Paragraphs (B) and (C) above before the issuance of the Eligible Bond; or
          (b)      The Reset Rate may be a fixed rate of interest determined in
accordance with Paragraphs (B) and (C) above for the tranche of the Eligible
Bond immediately prior to the Reset Date.
E.      Eligible Bonds Issued at a Premium. An HFA may elect to issue its
Eligible Bonds at a maximum premium of 103% in order to obtain extra proceeds to
only be used to make supplemental loans to borrowers for downpayment assistance
so long as the internal rate of return on the Eligible Bonds does not exceed the
internal rate of return for the same Eligible Bonds issued without a premium but
at a rate of interest which would otherwise be applied to that bond under the
New Issue Bond Program. In addition, New Issue Bonds issued at a premium may not
be issued in connection with Escrowed Proceeds, and the aggregate principal
amount of such premium bonds may not exceed 20% of the aggregate principal
amount of New Issue Bonds at the time of issuance of such premium bonds.
F.      Control of Remedies. Control of the exercise of all rights and remedies
on the underlying Eligible Bonds shall be pursuant to the provisions of
Section 8 of the MOU.
5.      Method of Acquiring New Issue Bonds and Issuing GSE Securities.
A GSE will acquire the Eligible Bonds directly from an HFA or the HFA’s
underwriter (and immediately thereafter transfer such Eligible Bonds to a Trust)
by swapping the related GSE Security which represents the beneficial ownership
interests in the Trust for the Eligible Bond. The HFA or other party will
simultaneously transfer the GSE Security to Treasury’s acquisition agent or
another third-party dealer acting on behalf of Treasury.
6.      GSE Securities.
A.      Issuance in the Ordinary Course of Business. In the ordinary course of
its business and in accordance with its customary policies, procedures and
programs, each GSE will place or arrange for the placement of New Issue Bonds to
be securitized or

A-6

--------------------------------------------------------------------------------

 

resecuritized under this MOU in a Trust or Trusts for securitization under
appropriate policies and procedures established by that GSE for that purpose.
The structure and supporting details of a Trust established by a GSE may vary
from those adopted by the other GSE to conform to its transactional and
operational norms or from time to time within a single GSE as circumstances
warrant.
B.      Eligible Bonds of a Single Issue Placed Together. Eligible Bonds from a
single issue of HFA bonds may be placed together so as to back a single GSE
Security.
C.      Allocation of Principal and Interest; Available Funds Only. All
principal and interest received on the Eligible Bonds backing a GSE Security,
less administrative and other fees and expenses to which the GSEs are entitled,
will be allocated to that GSE Security without preference or priority. All GSE
Securities will be structured, and all distributions will be made, solely on an
available funds basis.
D.      Issuance Cycle. Each GSE will issue its GSE Securities not more than
once each month in accordance with a standardized schedule.
E.      Distribution Dates. The Trusts represented by GSE Securities will
distribute funds available from payments received from the underlying Eligible
Bonds, less administrative fees and other fees and expenses to which the GSEs
are entitled, on the 25th calendar day of the month. Depending on the mix of HFA
bond payment dates represented in a GSE Security, distributions may not be
payable every calendar month.
GSE Securities will not be guaranteed by the United States and will not
constitute a debt or obligation of the United States or any agency or
instrumentality thereof other than the GSE issuing the GSE Security.
7.      GSE Fees.
A.      The GSE issuing a GSE Security will be entitled to an allocation of the
interest payments received on the related Eligible Bonds. The GSEs allocation
will be an amount (“Allocation Amount”) to compensate the GSEs for (i) their
Loss Sharing obligations with Treasury plus (ii) management of the New Issue
Bond Program and to pay certain third-party expenses. The Allocation Amount and
the other fees chargeable by the GSEs under the Programs are set forth in
Appendix F.
B.      Should the available amounts of interest received on an Eligible Bond at
any time be less than the Allocation Amount allocable to a GSE, the GSE may
charge such shortfall to payments of interest received on any of the other
Eligible Bonds under the New Issue Bond Program and to Recoveries on Eligible
Bonds under the New Issue Bond Program.
C.      Each GSE shall be entitled to a structuring fee on the settlement of
each GSE Security as set forth in Appendix F and such other fees as set forth in
Appendix F.

A-7

--------------------------------------------------------------------------------

 

8.      Loss Sharing.
The GSE issuing a GSE Security shall share principal losses with Treasury in
accordance with Appendix D, “Loss Sharing,” with respect to the Eligible Bonds
backing the GSE Security. In order to evidence the GSE’s loss sharing
obligations, the GSE will provide a Partial Guarantee to the related Trust for
Program Losses allocable to such GSE Securities. The GSE will make a payment
under a Partial Guarantee only under the circumstances set out in Appendix D.
9.      Multifamily Bonds.
The GSEs will acquire newly issued Eligible Bonds that finance multifamily
projects under the New Issue Bond Program, subject to the Program Limits set
forth in Appendix E. Such bonds may be issued under: (i) existing or new
multifamily only non-parity indentures and (ii) new multifamily only parity
indentures (collectively, “Permitted Indentures”). For multifamily loans
originated with proceeds of bonds issued under a Permitted Indenture under the
New Issue Bond Program, GSEs will underwrite such loans pursuant to a
multifamily underwriting standard developed by and acceptable to the GSEs, FHFA
and Treasury for such Program or such loans will be subject to credit
enhancement provided by the GSEs, FHA or GNMA. The GSE Security backed by these
Eligible Bonds will have a Partial Guarantee and be subject to Loss Sharing with
Treasury as described in Appendix D. This Section does not apply to the
underlying loans financed by VRDOs supported by the TCLF Program.

A-8

--------------------------------------------------------------------------------

 

Appendix B
Multifamily Credit Enhanced Bonds
1.      General Structure of Multifamily Credit Enhancement Program.
A.      Acquisition of Multifamily Credit Enhanced Bonds. Each GSE shall,
separately from the other GSE, arrange for the pricing and acquisition by
Treasury of Multifamily Credit Enhanced Bonds for which the GSE has provided or
will be providing credit enhancement.
B.      No GSE Securities. Each GSE shall credit enhance project-based
Multifamily Credit Enhanced Bonds directly.
C.      No Additional Risk Sharing. As the GSEs will compete with each other as
stated above to provide credit enhancement for Multifamily Credit Enhanced
Bonds, there will be no risk sharing obligation with respect to the Multifamily
Credit Enhancement Program.
D.      Ownership Vests with Treasury. Pursuant to the terms of a placement
agreement, Treasury or its nominee will immediately acquire ownership of the GSE
credit-enhanced Multifamily Credit Enhanced Bonds. It is the intent of each of
the parties to the MOU that the GSEs will not be treated as beneficial owners of
the Multifamily Credit Enhanced Bonds at any time for federal income tax or any
other purposes (see Section 11 of the MOU).
2.      Method of Acquiring Multifamily Credit Enhanced Bonds.
Because (i) the Multifamily Credit Enhanced Bonds include, at their core, an
obligation of the GSE as credit enhancer covering all principal and interest
payable on the bond and (ii) all payments on the Multifamily Credit Enhanced
Bonds will be made from funds provided by the GSE, Treasury will purchase the
Multifamily Credit Enhanced Bonds directly from the HFAs. Simultaneous with
closing and the issuance of GSE credit enhancement, Treasury shall enter into a
bond purchase agreement with the HFAs and the GSE to purchase the credit
enhanced Multifamily Credit Enhanced Bonds.
3.      Eligible Bonds.
Multifamily Credit Enhanced Bonds eligible for acquisition under the Multifamily
Credit Enhancement Program (“Eligible Bonds”) must satisfy the following
requirements:
A.      Tax-Exempt Status. The Multifamily Credit Enhanced Bonds to be credit
enhanced by the GSE’s under the multifamily portion of the HFA Initiative shall
be tax-exempt or taxable but only if such taxable bonds otherwise meet the
conditions of tax-exempt bonds but are issued on a taxable basis due to volume
cap allocation limitations

B-1

--------------------------------------------------------------------------------

 

of the HFAs. Notwithstanding the foregoing, the HFAs must apply their current
volume cap allocations to this Program or the New Issue Bond Program unless
already formally allocated and use their reasonable best efforts to secure
volume cap allocations for the issuance of tax-exempt bonds under such Programs.
B.      Requirements During Acquisition Period. In order to qualify under this
Program, the document delivery requirements set forth in Section 6 of the MOU
with respect to Eligible Bonds must be met on or prior to December 31, 2009.
C.      Escrow. Proceeds may be escrowed for a period of up to six (6) months
using a similar process to the process permitted under the New Issue Bond
Program as described in Paragraphs 2(I) through (L) of Appendix A, “GSE
Securities Backed by New Issue Bonds.”
4.      Interest Rate Pricing of Multifamily Credit Enhanced Bonds.
A.      Construction Bond
A bond relating to a multifamily project in construction shall have the
following parameters:
     (1)      Construction Phase. In accordance with the standard practices of
the GSEs, Bonds acquired under this Section will be required to enter into
arrangements for a construction lender and provide a construction letter of
credit during the construction and lease-up period that meets the requirements
of the GSE providing credit enhancement for such Bond.
     (2)      Construction Period. For the first 48 months, the Index Bonds will
bear interest on a floating rate basis equal to SIFMA (weekly reset rate) plus a
spread as set forth in Appendix F, “Pricing Schedule.” The Bonds will be
interest-only during this 48-month period.
     (3)      Conversion to Fixed Rate. Commencing with the 49th month, the
Index Bonds will convert to a fixed rate based on the 10-Year CMT rate, on the
date such Bond is originally funded, plus a spread as set forth in Appendix F.
     (4)      Amortization and Term. Commencing with the 49th month, the
converted Index Bonds will amortize on a 30-year schedule (for an aggregate of a
34-year term) with mandatory tender after 18 years from the date of issuance.
     (5)      Treasury Long Bond Purchase. The Fixed Rate Bonds can be split
into serial bonds with a term of less than 10 years that will be sold into the
market. Treasury will only purchase Bonds with terms in excess of 10 years.

B-2

--------------------------------------------------------------------------------

 

B.      Non-Construction Bond
A bond relating to a multifamily project that is not in construction shall have
the following parameters:
     (1)      Eligibility. For Eligible Bonds converting from construction to
permanent financing that have been outstanding for a period of no more than five
(5) years.
     (2)      Rate. At a 10-Year CMT rate plus a spread as set forth in
Appendix F.
     (3)      Amortization and Term. Amortization on a 30 year schedule with a
30 year term.
     (4)      Treasury Long Bond Purchase. The Fixed Rate Bonds can be split
into serial bonds with a term of less than 10 years that will be sold into the
market. Treasury will only purchase Bonds with terms in excess of 10 years.
C.      100% Treasury Purchase. Except for serial bonds, Treasury will purchase
all of the aforementioned GSE credit-enhanced Construction Bonds and
Non-Construction Bonds.
5.      Credit Enhancement.
A.      In the ordinary course of their business and in accordance with their
customary policies, practices and programs, the GSEs will compete with each
other to provide direct-pay credit enhancement for the Multifamily Credit
Enhanced Bonds. Accordingly, the GSEs shall bear all of the credit risk related
to the Multifamily Credit Enhanced Bonds and loss sharing shall not be a
separate feature of the Multifamily Credit Enhancement Program.
B.      All principal and interest on the Multifamily Credit Enhanced Bonds will
be fully credit enhanced by a GSE through a separate direct-pay obligation
issued to the bond indenture trustee for the benefit of all holders of the
bonds. The terms of the credit enhancement will require the GSE to provide, from
its own resources, all payments made on the Multifamily Credit Enhanced Bonds.
Accordingly, Treasury as a holder of a Multifamily Bond under this Program will
acquire a bond and a GSE Obligation and all payments received on the Multifamily
Credit Enhanced Bond will be paid by the GSE and not the HFA or the borrower on
the underlying multifamily mortgage loan.
C.      The GSEs shall control the exercise of all rights and remedies on the
Multifamily Credit Enhanced Bonds so long as the GSE credit enhancement remains
in effect.

B-3

--------------------------------------------------------------------------------

 

Appendix C
GSE Obligations Backed by Bank Bonds Acquired with Liquidity Advances under
Temporary Credit and Liquidity Facilities
1.      General Structure of Temporary Credit and Liquidity Facility Program.
A.      Overview.
     (1)      General. The GSEs will provide liquidity and credit support for
certain existing and currently outstanding single family bonds and certain
existing and currently outstanding multifamily bonds backed by pools of Secured
Multifamily Loans, issued as variable rate demand tax-exempt and taxable bonds
issued by HFAs by the delivery of a temporary credit and liquidity facility
(each, a “Temporary Credit and Liquidity Facility” or “TCLF”). Treasury will
purchase a participation interest in each TCLF, which participation interest
obligates the GSEs, under certain circumstances, to deliver to Treasury GSE
Securities backed by Bank Bonds that have been purchased with Liquidity Advances
made under that TCLF.
     (2)      Program Limitations. The limitations to the HFAs for tax-exempt
bonds under such Programs are set forth in Appendix E, “New Issue Bond Program,
and Temporary Credit and Liquidity Facility Program Limitations.”
     (3)      Single Family Loans under the Temporary Credit and Facility
Program. The GSEs will provide TCLFs for indentures that are rated “BBB” or
above for bonds that were issued prior to the date of the announcement of this
Program, subject to the Program Limits of the Temporary Credit and Liquidity
Facility Program set forth in Appendix E, “New Issue Bond Program, and Temporary
Credit and Liquidity Facility Program Limitations. .
     (4)      Multifamily Loans under the Temporary Credit and Liquidity
Facility Program. The GSEs will provide TCLFs for indentures that are rated “A”
or above for bonds that were issued prior to the date of the announcement of
this Program, subject to the Program Limits of the Temporary Credit and
Liquidity Facility Program set forth in Appendix E, “New Issue Bond Program, and
Temporary Credit and Liquidity Facility Program Limitations.”
B.      Eligible Bonds. The bonds eligible for support under this Program must
meet the following requirement. The bonds must have been issued before
announcement of this Program by Treasury.
C.      Requirements During Acquisition Period. In order to qualify under this
Program, the document delivery requirements set forth in Section 6 of the MOU
with respect to Eligible Bonds must be met on or prior to December 31, 2009.

C-1

--------------------------------------------------------------------------------

 

D.      Transition to Other Funding Mechanisms. This Program will be designed to
encourage HFAs to transition to private providers or other funding mechanisms as
the market stabilizes.
2.      Temporary Credit and Liquidity Facility Terms.
A.      Each TCLF will provide standby credit enhancement and standby liquidity
bond purchase commitments for VRDOs that are not Bank Bonds for a period of
three (3) years from the closing date of such TCLF, provided that each TCLF must
expire by its terms on or before December 31, 2012.
B.      Temporary credit and liquidity support for the VRDOs shall be provided
in equal shares by the GSEs, with each GSE being liable to existing Bondholders
for 50%, on a pro rata basis, of required liquidity support payments and 50%, on
a pro rata basis, of required credit support payments.
C.      Subject to 1.C above, no TCLF shall be executed and delivered or become
effective after December 31, 2009.
D.      An HFA participating in the Temporary Credit and Liquidity Facility
Program will pay a continuing Temporary Credit and Liquidity Facility Fee to the
GSEs based on the daily average of the outstanding and undrawn commitment under
the TCLF. A portion of the Temporary Credit and Liquidity Facility Fee shall be
remitted, as and when received, by the GSEs to Treasury to the extent and as
described below.
E.      The HFA benefiting from a TCLF shall have the right to terminate the
facility at any time generally on reasonable terms consistent with market
practice, but no GSE may charge a termination fee, fee maintenance charge or
other similar fee (other than for actual out-of-pocket expenses incurred to
third parties in effecting the termination) to the HFA or any other party on
account of the termination.
F.      Concerning each TCLF, an HFA will enter into a related Reimbursement
Agreement with the GSEs. The Reimbursement Agreement will provide, among other
things, that the HFAs will reimburse the GSEs upon demand for (a) credit
advances and (b) any other amount which the HFA is obligated to pay or reimburse
under the terms of the Reimbursement Agreement. The HFA will be required to pay
interest on any unreimbursed credit advance at an annual rate of interest equal
to the Prime Rate plus 1%. The promise of the HFA to repay credit advances will
be secured by a pledge of the HFA’s ownership interests in the mortgage loans
and other assets backing the indenture pursuant to which the supported VRDOs
were issued, which pledge will be subject to the lien and claim of all other
bonds issued under the indenture.
G.      In the event the TCLF is not replaced prior to its expiration date, the
GSEs will have the right to cause a mandatory tender of the VRDOs.

C-2

--------------------------------------------------------------------------------

 

3.      HFA Covenants.
Each Reimbursement Agreement will provide that during the term of the TCLF the
HFA covenants to:
     (1)      Not issue new bonds on a variable rate demand, adjustable rate or
auction rate basis under the same indenture pursuant to which the supported
VRDOs are issued other than as permitted under Paragraph 4(D) of Appendix A,
“GSE Securities Backed by New Issue Bonds;”
     (2)      Transition, as the market stabilizes, to private liquidity
providers or other funding mechanisms that will result in a reduction in the
supported VRDOs outstanding;
     (3)      Continuously monitor the market with the objective of converting
the VRDO issue to a fixed rate financing without credit enhancement from the
GSEs and effect such a conversion if it can be accomplished at a break even cost
to the HFA, including the cost of terminating any related interest rate swap;
     (4)      Certify annually on the anniversary date of the TCLF execution
that a conversion to fixed rate was uneconomical during the prior year;
     (5)      Prepare documents within six (6) months of delivery of a TCLF that
will allow the HFA to expeditiously convert the VRDOs to fixed rate securities
if economic conditions permit;
     (6)      Except for scheduled or other required redemptions, redeem Bank
Bonds ahead of any other outstanding bonds issued pursuant to the related
indenture;
     (7)      Apply available excess funds to redeem all Bank Bonds on or before
the expiration of the TCLF;
     (8)      To the extent the HFA does not have sufficient funds to redeem all
Bank Bonds on or before the expiration of the TCLF, “term-out” the outstanding
Bank Bonds over a 10-year period based upon amortization required in the related
indenture as if no Bank Bonds were outstanding with a balloon principal payment
at the end of the 10-year period if required;
     (9)      Not allow any money, mortgage loans or other assets to be
withdrawn from the indenture (other than for scheduled debt service on Bonds
issued under that indenture and the costs of administering the mortgage loan
program and the bond financing), or otherwise pledged or hypothecated, unless
such funds are used to redeem Bank Bonds or bank bonds associated with the
related indenture;

C-3

--------------------------------------------------------------------------------

 

     (10)      Agree to execute a commitment for the provision of a replacement
liquidity facility no later than 90 days prior to the stated expiration date of
the TCLF and, if a commitment is not obtained by such date, report in writing to
Treasury and the GSEs on efforts undertaken and reasons for the lack of success,
and execute and deliver a replacement liquidity facility by the date which is
30 days prior to the expiration date of the TCLF; and
     (11)      With respect to the purchase, origination, enforcement and
servicing of mortgage loans and MBS:
          (a)      originate or cause to be originated, mortgage loans and
purchase, or cause to be purchased, MBS in a manner consistent with applicable
state law, the indenture and any supplements thereto, and such other related
documents by which the HFA is bound;
          (b)      cause all mortgage loans to be serviced pursuant to the
servicing requirements of the HFA, Fannie Mae and Freddie Mac, as applicable, or
any other party providing credit support is respect of the Secured Multifamily
Loans;
          (c)      diligently take all steps necessary or desirable to enforce
all terms of the mortgage loans, MBS, loan program documents and all such other
documents evidencing obligations to the HFA; and
          (d)      diligently take all actions consistent with sound mortgage
loan origination, purchase and servicing practices and principles as may be
necessary to receive and collect sufficient revenues to pay debt service when
due on the bonds.
4.      Temporary Credit and Liquidity Fees.
Temporary Credit and Liquidity Fees are set forth in Appendix F, “Pricing
Schedule.”
5.      Treasury Purchase of Participation Interest.
Simultaneously with the closing of each TCLF, Treasury shall execute and deliver
to the GSEs a Participation Agreement which shall evidence Treasury’s purchase
of an undivided participation interest in that TCLF. Under the terms of the
Participation Agreement, Treasury shall share the repayment risks incurred by
the GSEs for advances and payments made under the TCLF, and the GSEs shall be
obligated (i) to remit to Treasury a portion of the Temporary Credit and
Liquidity Fee and (ii) to deliver, under certain circumstances, to Treasury GSE
Securities backed by Bank Bonds acquired with Liquidity Advances made under the
TCLF.
A.      Terms of Participation Agreement. The Participation Agreement will state
(i) the terms for funding Treasury’s participation interest, (ii) the custodial
provisions relating to

C-4

--------------------------------------------------------------------------------

 

Bank Bonds and the terms of any GSE Security, (iii) the Partial Guarantee and
(iv) the fees to be paid to Treasury and to be retained by the GSEs. See the
provisions relating to Loss Sharing in Appendix D.
B.      Liquidity Advances and Related Provisions.
     (i)      The GSEs shall make required Liquidity Advances under a TCLF and
obtain funds in the amount of any such advance provided by Treasury on the date
of such Liquidity Advance, whether the VRDO purchase results from optional or
mandatory tender, and the purchased VRDOs (Bank Bonds) will be registered in the
names of the GSEs and held pursuant to the terms of the Participation Agreement.
GSEs shall advise Treasury of the amount and the payment date for each bond
indenture trustee request for a Liquidity Advance under a TCLF and Treasury
shall provide immediately available funds on the same day as its participation
interest with respect to such Liquidity Advance by transferring to the GSEs an
amount equal to the principal and interest required to be advanced by the GSEs.
     The Principal TCLF Closing Documents for each Temporary Credit and
Liquidity Facility shall require the bond indenture trustee to send a copy to
Treasury (or its agent) of each notice it sends to the GSEs with respect to any
bondholder tender of bonds, any remarketing of such bonds and any drawing on the
GSEs of a Liquidity Advance. Such notices will enable Treasury to receive
advance warning that it may have to make a payment under this Paragraph.
     (ii)      Prior to the issuance of GSE Securities backed by particular Bank
Bonds and subject to the terms of the related Participation Agreement, such Bank
Bonds shall be held in a Trust pursuant to the provisions of the Participation
Agreement while the remarketing agent seeks to resell such VRDOs.
     (iii)      Bank Bonds held by each GSE are subject to immediate
securitization in the form of GSE Securities to be delivered to Treasury at the
option of the GSEs or at the written request of Treasury.
     (iv)      Bank Bonds held by each GSE as of the expiration of the TCLF,
including those purchased as a result of a mandatory tender due to the pending
expiration of the TCLF, will be securitized in the form of GSE Securities and
delivered to Treasury at the written request of Treasury or the GSEs.
C.      TCLF Shall Not Enhance Bank Bonds. Bank Bonds shall not be enhanced by
or otherwise have the benefit of the TCLF, including but not limited to the time
during which such Bank Bonds have been securitized in the form of GSE
Securities.
D.      Credit Advances and Related Provisions. On a standby basis, GSEs will
make credit advances under their TCLFs to the bond indenture trustees as
necessary to fund shortfalls in indenture cashflow and reserves to pay debt
service on the VRDOs. The

C-5

--------------------------------------------------------------------------------

 

Participation Agreement will require that, upon notice by the GSEs, Treasury
will reimburse the GSEs for all such credit advances in immediately available
funds on the same day as the GSE credit advance. The Principal TCLF Closing
Documents for each Temporary Credit and Liquidity Facility shall require the
bond indenture trustee to send a copy to Treasury (or its agent) of each notice
it sends to the GSEs with respect to any drawing on the GSEs in respect of a
Credit Advance. Such notices will enable Treasury to receive advance warning
that it may have to make a payment under this Paragraph. The party with Decision
Control shall have the right to cause a mandatory tender of all supported VRDOs
in the event that a credit advance is not reimbursed as required under the terms
of the Reimbursement Agreement. In the event that a VRDO shall become subject to
mandatory tender or is otherwise tendered, as a result of an unreimbursed credit
advance, Bank Bonds so acquired shall be subject to securitization in the form
of GSE Securities which will be delivered to Treasury at the written request of
Treasury.
E.      Payments. Less administrative fees and other fees and expenses to which
the GSE are entitled as set forth in Appendix F, the GSEs will remit to Treasury
principal of and interest on Bank Bonds as and to the extent received.
6.      Remarketing of Bank Bonds.
The parties to the MOU understand and agree that all Bank Bonds will be subject
to remarketing by the related remarketing agent under the terms of the related
indenture and remarketing agreement. During the term of a TCLF, related Bank
Bonds which have been securitized as GSE Securities may be withdrawn from such
securitization and remarketed as VRDOs having the benefit of the TCLF, so long
as such withdrawal is in compliance with the operational requirements of the
GSEs. The TCLF shall no longer be effective with respect to any Bank Bonds which
have been withdrawn from such securitization after the expiration or termination
of the TCLF.
7.      GSE Securities.
A.      Placement of Bank Bonds into a Trust for Securitization. In the ordinary
course of its business and in accordance with its customary policies and
procedures, and in accordance with the applicable Participation Agreement, each
GSE will place or arrange for the placement of the related Bank Bonds in a Trust
or Trusts for securitization under appropriate policies, practices and
procedures established by that GSE for that purpose in a manner similar to the
GSE Securities issued pursuant to Paragraph 6 of Appendix A. The GSE’s shall be
paid a structuring fee on the settlement of the GSE Security, as set forth in
Appendix F.
GSE Securities will not be guaranteed by the United States and will not
constitute a debt or obligation of the United States or any agency or
instrumentality thereof other than the GSE issuing the GSE Security.
B.      Loss Sharing. The loss sharing arrangement between the GSEs and Treasury
is set forth in Appendix D.

C-6

--------------------------------------------------------------------------------

 

C.      Control of Remedies. Control of the exercise of all rights and remedies
on the underlying Eligible Bonds shall be pursuant to the provisions of
Section 8 of the MOU.

C-7

--------------------------------------------------------------------------------

 

Appendix D
Loss Sharing
Certain losses realized under the New Issue Bond Program and certain losses
realized under the Temporary Credit and Liquidity Facility Program will be
shared between the GSEs and Treasury as described in this Appendix. There will
be no loss sharing with respect to the Multifamily Credit Enhancement Program.
1.      General Statement.
Treasury and the GSEs will share Program Losses, if any, realized on:
     (a)      the principal of the New Issue Bonds backing the GSE Securities
issued from time to time under the New Issue Bond Program; and
     (b)      the principal portion of all credit advances and liquidity
advances made from time to time under the Temporary Credit and Liquidity
Facilities issued under the Temporary Credit and Liquidity Facility Program.
Any losses incurred with respect to accrued but unpaid interest on any of the
New Issue Bonds backing the GSE Securities issued from time to time under the
New Issue Bond Program and on any credit advance or liquidity advance made from
time to time under the Temporary Credit and Liquidity Facilities issued under
the Temporary Credit and Liquidity Facility Program are not subject to sharing
with the GSEs and will be entirely borne by Treasury. No loss sharing shall
occur with respect to the Multifamily Credit Enhancement Program as a GSE will
have provided credit enhancement for such Bonds separately.
2.      GSE Only Shares in Losses for its Activities in Programs.
The sharing of Program Losses will be structured between Treasury and each GSE
separately. A GSE will only share in Program Losses realized on the New Issue
Bonds backing the GSE Securities issued by that GSE and on losses realized on
that GSE’s portion of the Temporary Credit and Liquidity Facilities. Neither GSE
will share in Program Losses allocable to the other GSE.
3.      Allocation of Losses between Treasury and GSE.
Treasury will bear all Program Losses realized on the New Issue Bond Program and
the Temporary Credit and Liquidity Facility Program up to the First Loss Limit
(“First Position Losses”). Each GSE will bear Program Losses, if any, realized
on the New Issue Bond Program and the Temporary Credit and Liquidity Facility
Program once the Program Losses realized by Treasury equal the First Loss Limit
(“Second Position Losses”).

D-1

--------------------------------------------------------------------------------

 

4.      First Loss Limit.
With respect to a GSE, the First Loss Limit will be 35% of the sum of:
       (a)      the aggregate original principal amount of all New Issue Bonds
backing the GSE Securities issued from time to time under the New Issue Bond
Program by that GSE; and
       (b)      the aggregate original principal portion of the commitment
amount made by the GSE in each Temporary Credit and Liquidity Facility issued
under the Temporary Credit and Liquidity Facility Program.
Such First Loss Limit may be adjusted by the parties to the MOU if the aggregate
amount under either (a) or (b) above is less than $10 billion, or upon the
obtaining or processing of information impacting the applicable Risk Ratings, or
such other material new information that affects risk, commercial
reasonableness, or safety and soundness under either the New Issue Bond Program
or the Temporary Credit and Liquidity Facility Program. Any such adjustment
shall be made in good faith by the parties to the MOU based upon objective
thresholds factoring into, among other things, the applicable Risk Ratings and
the aggregate amounts set forth in (a) and (b) above.
5.      When Transaction Loss is Calculated.
       (a)      New Issue Bond Program. Under the New Issue Bond Program,
Transaction Loss will be calculated separately with respect to each Eligible
Bond upon twelve (12) months after the first to occur of:
     (1)      the stated maturity date of the Eligible Bond;
     (2)      the date the Eligible Bond is fully redeemed;
     (3)      the date of acceleration of the Eligible Bond; or
     (4)      the date of mandatory tender in lieu of redemption of the Eligible
Bond.
       (b)      Temporary Credit and Liquidity Facility Program. Under the
Temporary Credit and Liquidity Facility Program, Transaction Loss will be
calculated for each Temporary Credit and Liquidity Facility upon the last to
occur of:
     (1)      the date the GSE has no further obligation under the Temporary
Credit and Liquidity Facility;
     (2)      the date all Bank Bonds, if any, are paid in full, remarketed or
redeemed; or

D-2

--------------------------------------------------------------------------------

 

     (3)      twelve (12) months after the first to occur of:
     (A)      a Credit Advance remains unreimbursed;
     (B)      a Bank Bond is not paid or redeemed when due and payable at
maturity; or
     (C)      the GSE causes the acceleration, redemption or mandatory tender of
the Bonds upon the occurrence of an Event of Default under any of the
Transaction Documents.
6.      How Losses are Determined.
Transaction Losses will be calculated for an Eligible Bond or a Temporary Credit
and Liquidity Facility as follows:
       (a)      New Issue Bond Program. Under the New Issue Bond Program, a
Transaction Loss under a Term Bond is the amount of principal of such Eligible
Bond then due and unpaid as of the date that Transaction Loss is calculated. Any
accrued and unpaid interest and any interest on interest or interest on other
unpaid sums will not be included in Transaction Losses and will be borne solely
by Treasury.
       (b)      Temporary Credit and Liquidity Facility Program. Under the
Temporary Credit and Liquidity Facility Program, a Transaction Loss under a
Temporary Credit and Liquidity Facility is:
     (1)      all amounts owing and unpaid by the HFA under the related
Reimbursement Agreement (whether constituting unreimbursed Credit Advances,
unreimbursed Liquidity Advances, accrued and unpaid fees or unpaid amounts owing
on any Bank Bond), less
     (2)      the sum of all amounts reimbursed, received or recovered on
account of the amounts owing under Paragraph (1) above prior to the Loss
Calculation Date.
The amount of any Transaction Loss will be allocated between unreimbursed Credit
Advances and unreimbursed Liquidity Advances (and the related Bank Bonds) on the
basis of the ratio of aggregate unreimbursed principal of the Credit Advances to
the aggregate unreimbursed principal of the Liquidity Advances.
       (c)      Calculation Rules. For purposes of determining Transaction Loss
under the New Issue Bond Program:
     (1)      Transaction Loss will be calculated only with respect to the Bonds
actually held by the related Trust. Any related Serial Bonds or other Bonds that

D-3

--------------------------------------------------------------------------------

 

were not acquired by the Trust shall be excluded from the calculation of
Transaction Loss.
     (2)      For purposes of calculating Transaction Loss, all payments made by
the trustee for the Bonds shall be applied as principal or interest as
characterized by the trustee for the Bonds in making such payment. Should the
trustee for the Bonds not characterize a payment as either principal or
interest, then that payment shall be characterized as required by the indenture
or bond resolution for the Bonds. If the trustee for the Bonds does not
characterize the payment as principal or interest and the related indenture or
resolution contains no relevant terms, then the payment shall be applied first
to outstanding and unpaid principal of the Bonds in the order of their stated
maturity dates and then to accrued and unpaid interest on the Bonds in the order
of their stated maturity dates.
7.      Procedure for Reporting a Transaction Loss.
Pursuant to the timeframes set forth in Paragraph 5 above, the GSE will
calculate, or cause to be calculated, the amount of Transaction Loss, if any,
realized on a Term Bond or Temporary Credit and Liquidity Facility as provided
in Paragraph 6 above.
8.      Reporting if No Transaction Loss Calculated.
If the calculation prepared in accordance with Paragraph 7 above shows that no
Transaction Loss was realized, the GSE will provide or cause to be provided a
statement to that effect to Treasury within 90 days of the Loss Calculation
Date.
9.      Reporting if Transaction Loss Calculated; Payment of Second Position
Loss.
A.      Reconciliation. If the calculation shows that a Transaction Loss was
realized, the GSE will send a written reconciliation calculation to Treasury
within 90 days of the Loss Calculation Date which specifies:
     (1)      Transaction Identification: The Eligible Bond or Temporary Credit
and Liquidity Facility for which the reconciliation is made.
     (2)      Transaction Loss: The Transaction Loss realized on the Eligible
Bond or Temporary Credit and Liquidity Facility as of the Loss Calculation Date.
     (3)      Program Losses:
          (A)      Aggregate Program Losses (excluding only the Transaction Loss
then just calculated for the Eligible Bond or Temporary Credit and Liquidity
Facility for which the reconciliation is made); and

D-4

--------------------------------------------------------------------------------

 

          (B)      Aggregate Program Losses realized as of the Loss Calculation
Date (including the Transaction Loss then just calculated for the Eligible Bond
or Temporary Credit and Liquidity Facility for which the reconciliation is
made).
     (4)      The First Loss Limit.
     (5)      The amount of the First Loss Limit still to be borne by Treasury.
B.      First Position Losses. If the amount calculated in (a)(3)(B) is not more
than the First Loss Limit, then the Transaction Loss for the Term Bond or
Temporary Credit and Liquidity Facility for such reconciliation calculation is
fully First Position Losses.
C.      Partial First Position Losses; Partial Second Position Losses. If the
amount appearing in (a)(3)(A) is less than the First Loss Limit but the amount
calculated in (a)(3)(B) exceeds the First Loss Limit, then:
     (1)      the portion of the Transaction Loss equal to the difference
between the amount appearing in (a)(3)(A) and the First Loss Limit constitutes
First Position Losses; and
     (2)      the remaining portion of the Transaction Loss not allocated to the
First Position Losses constitutes Second Position Losses.
D.      Second Position Losses. If the amount appearing in (a)(3)(A) is more
than the First Loss Limit, then the entire Transaction Loss constitutes Second
Position Losses.
E.      Loss Sharing Payment. The GSE will pay the amount of any Second Position
Losses (less all amounts previously paid by the GSE to Treasury as Second
Position Losses) to Treasury or its order not later than 90 days after the Loss
Calculation Date. Loss sharing payments made with respect to GSE Securities will
be made as a distribution under the GSE Security and all other loss sharing
payments will be paid to Treasury to such account as Treasury may require.
10.      Recoveries; Losses are Incurred But Not In Excess of the First Loss
Limit.
This Paragraph applies if a GSE has calculated that a Transaction Loss has been
realized with respect to one or more Eligible Bonds or Temporary Credit and
Liquidity Facilities but the amount of the aggregate Program Losses has not
exceeded the First Loss Limit. If one or more payments are received or other
amounts are received or recovered with respect to any Eligible Bond or Temporary
Credit and Liquidity Facility in respect of a Transaction Loss, then all such
amounts will be paid to Treasury and the related Transaction Loss and,
consequently, the aggregate Program Losses will be reduced by the amount of such
Recovery.

D-5

--------------------------------------------------------------------------------

 

11.      Recoveries; Losses are Incurred Which Exceed the First Loss Limit.
This Paragraph applies if a GSE has calculated that a Transaction Loss has been
realized with respect to one or more Eligible Bonds or Temporary Credit and
Liquidity Facilities, aggregate Program Losses exceed the First Loss Limit and
the GSE has paid any Second Position Losses to Treasury. If one or more payments
are received or other amounts are received or recovered with respect to any
Eligible Bond or Temporary Credit and Liquidity Facility in respect of a
Transaction Loss, then:
       (a)      the related Transaction Losses and, consequently, the aggregate
Program Losses will be reduced by the amount of such Recovery;
       (b)      the GSE shall be entitled to such payments and other amounts,
but not in excess of the amount of the Second Position Losses previously paid to
Treasury; and
       (c)      any excess available after the payment made in subparagraph
(b) above shall be paid to Treasury.
12.      Partial Guarantees of GSE Securities.
In order to evidence a GSE’s loss sharing obligations with respect to the GSE
Securities it issues, the GSE will issue a partial guarantee to the related
Trust (“Partial Guarantee”) for Program Losses allocable to such GSE Securities.
The GSE will make a payment under a Partial Guarantee only under the
circumstances set out in this Appendix.
13.      Termination of Loss Sharing Upon Unwinding of GSE Security.
A GSE’s loss sharing obligations and any related Partial Guarantee will
automatically terminate with respect to any Term Bond and the related GSE
Security if Treasury causes a GSE Security to be unwound in exchange for the
underlying Eligible Bonds.

D-6

--------------------------------------------------------------------------------

 

Appendix E
New Issue Bond Program,
and Temporary Credit and Liquidity Facility Program Limitations
The size of each Program will be capped. To gauge demand, each HFA who desires
to participate in the New Issue Bond Program and the Temporary Credit and
Liquidity Facility Program will develop a program participation request in
consultation with Treasury, Fannie Mae and Freddie Mac showing their interest in
each Program and the desired amount of participation. The amount requested for
the New Issue Bond Program must be generally within reasonable expectations and
potential available volume cap, including an amount for 2010. The amount
requested for the Temporary Credit and Liquidity Facility Program may not exceed
the amount of outstanding bonds supported by facilities to be replaced under the
Program.
After all program requests are received, the Participants will determine final
program sizes.
New Issue Bond Program volume will be made available to the HFAs requesting
participation by generally using the allocation formula established by the
Housing and Economic Recovery Act of 2008 (“HERA”) for 2008 as a base line.
Where the 2008 HERA amounts were not allocated among state and local HFAs within
a state, Treasury will determine a final allocation.
Temporary Credit and Liquidity Facility Program volume will be made available to
the HFAs as Treasury determines.
If demand for a Program is smaller than these guidelines determined, Program
size will be set at a lower amount.

E-1

--------------------------------------------------------------------------------

 

Appendix F
Pricing Schedule
 
 

 
HFA Initiative: GSE Fees
   
Program
     
Description
     
Fee/Charge (bps)
  Temporary Credit
and Liquidity Facility
(TCLF) Program    Bank Bond
 Securitization Fee   5 bps annually from
time of Treasury
purchase    Bank Bond Security
 Unwrap Fee   Greater of 3.125 bps
of principal amount,
or $50,000 per
transaction, per GSE,
at time of settlement
(paid by underwriter
to GSE)           New Issue Bond
(NIB) Program    Initial Securitization
 Fee   Greater of 10 bps of
principal amount, or
$50,000 per
transaction, per GSE,
at time of settlement    Security Unwrap Fee   Greater of 3.125 bps of principal
amount, or $50,000 per transaction, per GSE, at time of settlement (paid by
underwriter to GSE)

F-1

--------------------------------------------------------------------------------

 

 
New Bond Fee Summary (bps per annum)
 

                                              Tsy Credit
      Additional
        Rating   Premium       GSE fee   Total Fee  
Single Family
  AAA / Aaa     35               25       60       AA / Aa     50              
25       75       A / A     85               25       110       BBB / Baa    
200               25       225                                                  
                                    Tsy Credit
      Additional
        Rating   Premium       GSE fee   Total Fee  
Multi Family — Immediate Funding
  AAA / Aaa     35               25       60       AA / Aa     50              
25       75       A / A     85               25       110                      
                                                                Tsy Credit
      Additional
        Rating   Premium   Rate Lock   GSE fee   Total Fee*  
Multi Family — New Construction
  AAA / Aaa     35       80       25       140       AA / Aa     50       80    
  25       155       A / A     85       80       25       190  

 
Additional Conditions
 
4yr Floating Rate — Premium will be set at SIFMA +50bps
* Applies only to fixed rate bond period
 
 
Liquidity Facility Fee Summary (bps per annum)
 

                                                                         
Additional
                        GSE fee                     Treasury Credit Premium  
applicable to
  Total Fee     Rating   Year 1   Year 2   Year 3   each year   Year 1   Year 2
  Year 3  
Single Family
  AAA / Aaa     15       40       65       25       40       65       90      
AA / Aa     25       50       75       25       50       75       100       A /
A     40       65       90       25       65       90       115       BBB / Baa
    100       125       150       25       125       150       175  
 
                                                           
Multifamily
  AAA / Aaa     25       50       75       25       50       75       100      
AA / Aa     25       50       75       25       50       75       100       A /
A     45       75       95       25       70       100       120  

 

F-2

--------------------------------------------------------------------------------

 

Appendix G
Definitions
For purposes of the MOU and the Appendices thereto, the following definitions
shall apply:
“Acquisition Period” means the period commencing on the date of public
announcement of the Programs by the federal government and ending on
December 31, 2009.
“Allocation Amount” has the meaning given such term in Paragraph 7(A) of
Appendix B.
“Bank Bonds” means any VRDOs that were tendered for purchase by a bondholder and
were put to a GSE under a TCLF and have not yet been remarketed to a new
bondholder.
“Bonds” means, as the case may be, VRDOs, Bank Bonds, Multifamily Credit
Enhanced Bonds and New Issue Bonds.
“Credit Advance” means an advance under a TCLF to pay debt service due on VRDOs
for which there are insufficient funds available under the related indenture.
“Crossover Date” means the first date on which Program Losses equal or exceed
25/35ths of the First Loss Limit.
“Decision Control” means:
     (a)      with respect to an Eligible Bond held by a Trust represented by a
GSE Security held by or on behalf of Treasury, any right available to a holder
of that Eligible Bond to (i) instruct the related bond indenture trustee to take
or refrain from taking an action or decision including, without limitation, any
proposed amendment, restatement, waiver, forbearance of, or supplement to, the
bond indenture or resolution under which the Eligible Bond was issued or
(ii) decide upon a course of action in response to an Event of Default; and
     (b)      with respect to a Temporary Credit and Liquidity Facility, the
right of a GSE to decide upon a course of action with respect to a default that
gives rise to an acceleration of the bonds or the exercise by the GSEs of
remedies available to them under the related reimbursement agreement or any of
the other related Transaction Documents.
“Definitive Documentation” has the meaning given to such term in Section 17(C)
of the MOU.
“Eligible Bonds” (i) in the case of New Issue Bonds, has the meaning given to
that term in Paragraph 2 of Appendix A, (ii) in the case of Multifamily Credit
Enhanced Bonds,

G-1

--------------------------------------------------------------------------------

 

means bonds described in Paragraph 3 of Appendix B, and (iii) with respect to
VRDOs, means bonds described in Paragraph 1(B) of Appendix C.
“Eligible Loans” has the meaning given to such term in Paragraph 2(B) of
Appendix A.
“Escrow” has the meaning given to such term in Paragraph 2 of Appendix A.
“Escrow Agreement” has the meaning given to such term in Section 6(C) of the
MOU.
“Escrow Proceeds” has the meaning given to such term in Paragraph 2 of
Appendix A.
“Event of Default” means an “event of default” as such term is defined in the
related bond indenture for the underlying bonds.
“Fannie Mae” means the Federal National Mortgage Association, a
federally-chartered and stockholder-owned corporation organized and existing
under the Federal National Mortgage Association Charter Act, 12 U.S.C. §1716 et
seq.
“FHA” means the Federal Housing Administration.
“FHFA” means the Federal Housing Finance Agency.
“First Loss Limit” has the meaning given to that term in Section 4 of
Appendix D, “Loss Sharing.”
“First Position Loss” means the amount of Program Loss to be borne by Treasury
under the Program. The First Position Loss is that portion of the Program Loss
that does not exceed the First Loss Limit.
“Freddie Mac” means the Federal Home Loan Mortgage Corporation, a
shareholder-owned government-sponsored enterprise organized and existing under
the laws of the United States.
“GNMA” means the Government National Mortgage Association, a
government-sponsored enterprise organized and existing under the laws of the
United States.
“Government-sponsored enterprise” or “GSE” means either or both Fannie Mae and
Freddie Mac.
“GSE Obligations” or “GSE Securities” are obligations and other securities
issued or guaranteed, in whole or in part, by Fannie Mae or Freddie Mac
including, without limitation, Bank Bonds, Multifamily Credit Enhanced Bonds and
New Issue Bonds and with respect to Sections 1(A), 1(B) and 5 of the MOU, the
Participation Agreement.
“HERA” has the meaning given to such term in Paragraph B(1) of Appendix.

G-2

--------------------------------------------------------------------------------

 

“HFA” means a housing finance agency created by any of the States of the United
States or any possession, territory or commonwealth of the United States, or any
political subdivision thereof.
“HFA Initiative” has the meaning given to such term in Section 1(B) of the MOU.
“Liquidity Advance” means an advance under a TCLF to pay for bond purchase
tenders relating to VRDOs.
“Loss Calculation Date” means the date as of which a Loss is calculated as
provided in Paragraph 5 of Appendix D.
“MBS” means mortgage-backed securities held under an HFA indenture under the New
Issue Bond Program or the Temporary Credit and Liquidity Facility Program.
“MOU” means the Memorandum of Understanding among Treasury, FHFA, Fannie Mae and
Freddie Mac.
“Multifamily Credit Enhanced Bonds” means project-based multifamily bonds
eligible for purchase in accordance with Section 4 of the MOU.
“Multifamily Credit Enhancement Program” means the program described in
Section 4 of the MOU.
“New Issue Bond Program” means the program described in Section 3 of the MOU.
“New Issue Bond Program Agreement” means each New Issue Bond Program Agreement
by and between Treasury and the GSEs whereby the rights, duties and obligations
of Treasury and the GSEs with respect to the New Issue Bond Program (including
the terms of the Partial Guarantee) are set forth, as such agreements are
amended and supplemented.
“New Issue Bonds” means, collectively, single family bonds and certain
multifamily bonds backed by pools of Secured Multifamily Loans eligible for
purchase in accordance with the provisions of Section 3 of the MOU for inclusion
in the New Issue Bond Program.
“Partial Guarantee” means a partial guarantee provided by a GSE (a) pursuant to
a Participation Agreement with respect to the Temporary Credit and Liquidity
Facility Program or (b) pursuant to a GSE Security issued with respect to the
New Issue Bond Program.
“Participant” means the Treasury, FHFA, Fannie Mae or Freddie Mac.
“Participation Agreement” means each Participation Agreement by and between
Treasury and the GSEs whereby the rights, duties and obligations of the Treasury
and the GSEs

G-3

--------------------------------------------------------------------------------

 

with respect to the Temporary Credit and Liquidity Facility Program (including
the terms of the Partial Guarantee) are set forth, as such agreements are
amended and supplemented.
“Permitted Escrow Investments” has the meaning given to that term in Paragraph 2
of Appendix A.
“Permitted Indentures” has the meaning given to that term in Paragraph 9 of
Appendix A.
“Placement Agreements” means Placement Agreements between the GSEs and the HFAs
evidencing (i) an unconditional obligation of the HFAs to issue the Eligible
Bonds and deliver them to the GSEs, and (ii) an unconditional obligation of the
GSEs to deliver GSE Securities backed by the Eligible Bonds.
“Prime Rate” means, for any day, a fluctuating rate of interest per annum equal
to the base or prime rate of a bank specified by the GSEs.
“Principal Multifamily Closing Documents” has the meaning given to such term in
Section 6(B) of the MOU.
“Principal New Issue Bond Closing Documents” has the meaning given to such term
in Section 6(A) of the MOU.
“Principal TCLF Closing Documents” has the meaning given to such term in
Section 6(C) of the MOU.
“Program” means any of the New Issue Bond Program, the Multifamily Credit
Enhancement Program, and the Temporary Credit and Liquidity Facility Program.
“Program Limits” mean the respective Program limitations of the New Issue Bond
Program, and the Temporary Credit and Liquidity Facility Program, all as set
forth in Appendix E.
“Program Losses” mean the aggregate of all Transaction Losses incurred under the
Temporary Credit and Liquidity Facility Program and the New Issue Bond Program.
“Recovery” means any payment or other amount received or recovered with respect
to a Transaction Loss. A Recovery excludes any amounts paid by a GSE to Treasury
with respect to a Second Position Loss or any amounts payable by Treasury to the
GSEs under any purchase agreement or participation agreement.
“Reimbursement Agreement” means each Reimbursement Agreement entered into
between an HFA and the GSEs relative to a TCLF, as such Reimbursement Agreements
are amended and supplemented.
“Reset Date” has the meaning given to such term in Paragraph 2 of Appendix A.

G-4

--------------------------------------------------------------------------------

 

“Risk Rating” means the risk rating of an indenture under a Program.
“Second Position Loss” means that portion of Program Losses, if any, that is not
allocated to the First Loss Position. Any Second Position Loss will be allocated
to the Partial Guarantees in accordance with the formula set out in the Partial
Guarantees.
“Secured Multifamily Loans” means loans that are secured by multifamily
properties.
“Serial Bond Ratio Requirement” has the meaning given to that term in
Paragraph 2(E) of Appendix A.
“Serial Bonds” has the meaning given to that term in Paragraph 2 of Appendix A.
“Spread” means the spread based upon the on the related Risk Rating.
“Temporary Credit and Liquidity Facility” or “TCLF” has the meaning given to
that term in Section 5(B) of the MOU.
“Temporary Credit and Liquidity Facility Fee” means the periodic fees payable by
an HFA to the GSEs for provision of a TCLF.
“Temporary Credit and Liquidity Facility Program” means the Program described in
Section 5 of the MOU.
“10-Year CMT” has the meaning given to that term in Paragraph 4(B) of
Appendix A.
“Term Bonds” has the meaning given to that term in Paragraph 2 of Appendix A.
“Transaction Documents” means, collectively, the TCLF, the Reimbursement
Agreement and related Bond documents with respect to any series included in the
Temporary Credit and Liquidity Facility Program, as such documents are amended
from time to time in accordance with their terms.
“Transaction Loss” means an amount calculated pursuant to Section 6 of
Appendix D, “Loss Sharing” as the loss realized on an Eligible Bond or a
Temporary Credit and Liquidity Facility.
“Trust” means a trust established by a GSE as a pass-through entity which holds
one or more issues of Bonds and, where appropriate, a Partial Guarantee.
“Variable Rate” means the rate of interest described in Paragraph 4(D)(2) of
Appendix A.
“VRDO” means a variable rate demand obligation bond issued by an HFA.

G-5