[Goldwingnut]

Originally Posted by BrianL99

Thank you for your input, Don.

As is obvious from the original post and your post, CDD Bonds are an extremely complicated subject and until you've had personal involvement in the (wing) nuts & bolts, it's hard to appreciate how it all works. I disagree that they're not a "loan", but that's simply semantics.

I think the most informative part of your post for those who don't understand the concept, is the sentence above in italics. Buyers have to pay for the infrastructure, one way or the other. If this wasn't a CDD Community, every home would have initially been priced at least 10% higher, to recoup the Developer's infrastructure costs.

You're far more of an expert than I on CDD Bonds, but if you jump into this again, you might want to remind folks that the Interest Rate spread is regulated by the state and not just a number the Developer picks out of the sky.

How are CDD Bonds going to be affected by the current interest rate situation? Interest rates this high, are something we haven't seen in many years. Bond prices move inversely to interest rates, as you know. How will this effect the Developer's plans to the South and resultant bond prices?

The developer isn’t involved in the bond nor it’s interest rate, and actually from the investor’s stand point it’s the return rate on their investment, as the bond is technically not a loan but an investment vehicle the return rate is a more accurate term. The CDD contracts with an investment firm (Chase, Citi, BoA, etc.) to market the bond and they do a market assessment to determine a marketable return rate. The firm is paid a fee (usually a percentage of the total bond amount) for their efforts.

The amount of the bond is negotiated between the CDD and the developer as to the expected reasonable cost of the infrastructure development. Once determined, the fees and additional costs are added to the total amount of the bond. The funds from the bond sales are held by the CDD and used to pay the developer’s invoices for infrastructure development.

An interesting aside on the bond issue is what happens if the development costs are less than estimated or worse yet, higher than estimated.

If the costs come in less than expected, the residuals that are held in the bond reserves fund managed by the CDD issuing the bond is kept by the CDD upon maturity. These funds would normally be transferred to the Repair and Replacement (R&R) fund of the CDD or less likely, be used to reduce the annual maintenance assessment of the CDD homeowners.

If the development costs run over, then what happens? This is exactly what has happened in CDD10. The last I remember (I stepped down from the CDD10 board to accept the position of County Commissioner) from 2 years ago, the developer had invoice about $1.5 million more than the amount of the bonds in CDD10. These additional invoicings sit unpaid and will remain unpaid until the bond maturity date. As I said in the previous post, there is a reserve fund that hold a portion of the initial payments of the homeowners and the funds from early bond payoffs made by some homeowners. These funds are conservatively invested and have a modest rate of return. At maturity this reserve is liquidated to pay the final payment, if there is anything leftover the developer would receive payment of the held invoices up to the original amount of the invoice or until the funds are exhausted. If there is no residual or insufficient to pay the remaining pending invoices then the developer received nothing more and writes off the unpaid invoices.

The bond rate doesn’t play a significant role in the sale of homes, the 15 and 30 year fixed rate mortgage rate however does have an indirect impact. The impact is less an impact to the individual buying the new home and more an impact to that same individual who may be selling their current home and looking for a buyer who is impacted by that rate. A significant portion (30-50% is the estimate I’ve heard thrown around) of the homes purchased in The Villages are “cash” purchases and don’t have a mortgage.