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					Development of Low-Income Housing
 Finance Programs in the Dominican
             Republic

               Steven Bernstein
 US Department of Housing and Urban Development
          Office of International Affairs
           Presentation Overview

•   HUD’s International Role
•   HUD’s Role in the Dominican Republic
•   HUD-OPIC Bond Financing Program
•   Dominican Mortgage Guarantee Facility
              What is HUD?

• A domestic agency tasked with developing
  the housing market of the United Sates
• Within HUD are Ginnie Mae and the FHA
• Also within HUD is the Office of
  International Affairs
        Office of International Affairs

• Exchange of information and technology
• De novo research on international housing
  and housing finance
• Development of housing and housing
  finance projects
• Disaster relief
           HUD Hurricane Relief

• US Congress Mandated Program
• Assist the Dominican Republic and Central
  American Countries Affected by Hurricanes Mitch
  and Georges
• Provide Assistance on Developing Sustainable
  Housing Finance Program
• Provide Assistance with Housing Constuction
  Technology, Community Building and Urban
  Planning
        HUD Role in the Dominican Republic

• Develop Sustainable Housing Finance Programs -
  Working with OPIC and the Private Sector
• Develop Blueprint and Assist in Development of a
  Major Low Income Housing Project.
• Provide Technical Assistance on Building
  Technology, Urban Design and Community
  Development
• HUD is Taking a Holistic Approach to the
  Dominican Republic
       HUD Housing Finance Initiatives
• Project 1: HUD - OPIC Bond Financing
   – Provide a long term source of funds for up to
     5,000 low-income households
   – Funding obtained by a bond issued in the USA
     in US$’s.
• Project 2: HUD Mortgage Guarantee
  Facility
   – Work with Domestic Institution(s) to Provide a
     Mortgage Insurance Policy for Low-Income
     Borrowers
      Project 1: HUD-OPIC Bond Goals

• Provide a Housing Finance Solution for up to
  5,000 Low-Income Borrowers Affected by
  Hurricane Georges
• Replicability. Develop a Model that can be used
  in Other Countries
• Strengthen the Dominican Housing Finance Sector
• Assessment. Formally Assess Low-Income Credit
  Performance
              Project 1: Deal Structure

• Issue AAA Rated US$ Denominated Bond in the USA;
  funds converted to Pesos and then lent to local Dominican
  Financial Institutions for low-income mortgages in a
  planned housing development
• Bond Rating Made Possible with OPIC Insurance
   – Non-convertibility
   – Political risk
   – Guarantee of timely principal and interest payments
• Bond: 20 year amortizing; 8%-9%; US$20 - US$30
  million
          Project 1: Deal Structure Con’t

• Mortgages: 15 - 20 year; initial interest rate 16.5% - 18%;
  semi-annual adjustments; payment cap on adjustments to
  maintain apx. 25% - 30% payment to income ratio; 10%
  down payment; in Pesos
• Loan Size: US$6,000 - US$7,000
• Loan Recipients: income between US$4,000 and
  US$6,000 per year
• Servicing: Local bank or savings and loan.
Project 1: HUD-OPIC Deal Structure
         Project 1 Roles: Public - Private Partnership

• HUD: Provide financial engineering expertise; in-country
  knowledge; borrower training; servicing and origination
  standards; housing development assistance. (US$1 million)
• OPIC: Bond insurance; financial engineering.
• Raymond James Inc.: Deal structuring; bond issuance.
• Strategy Group International - Dominican Financial
  Institution: Owner of SPV
• Dominican Financial Institution: Origination and servicing
                  Project 1: Status

•   Deal Structure: finalized
•   HUD Contribution: finalized
•   Formal OPIC Approval: July 2000
•   Bond Issued: November 2000
•   Mortgages Origination Begins: December 2000
          Project 1: Lessons Learned

• Exchange Rate Issue: works with low-volatile
  exchange rates
• Taxes: Taxation can be a deal-killer; plan on
  spending a lot of time with the government to get
  waivers
• Politics: Multi-country politics can make life
  difficult
• Developing New Products simply take a lot of
  time and effort
     Project 2: Dominican Guarantee Facility

• HUD sponsored program
• Will work with one or more local financial
  institutions to establish a mortgage
  guarantee program
• Guarantee is intended to incent local
  savings and loans to undertake high-LTV
  lending (>80%)
     Project 2: Dominican Guarantee Facility

• HUD funds $400,000
• Will provide guarantees for apx. 500
  mortgages
• Project is an experiment
• Start Date: September 2000
                    Conclusion

• Need for Affordable Housing is Greater than Ever
  Before
• Government Budget are Tightening: We must look
  to the private sector for capital and to share risk
• Creativity, Financial Engineering and the
  Willingness of Governments to Play a Limited
  Role will Make it Possible to Address the Housing
  Needs of the Region