Treasury, HUD Announce Program to Aid HFAs

A new initiative to stabilize the housing market wasrnannounced on Monday by the Departments of the Treasury and Housing and UrbanrnDevelopment (HUD).   The initiative is authorized by the Housingrnand Economic Recovery Act of 200 (HERA) and will be implemented primarilyrnthrough state and local Housing Finance Agencies (HFAs) with little cost to thernfederal government.

Under the HFA Initiative, Treasury, HUD, the Federal HousingrnFinance Agency (FHFA) along with Fannie Mae and Freddie Mac (the GSEs) willrnestablish a New Issue Bond Program (NIBP) which will provide temporaryrnfinancing allowing HFAs to issue new mortgage revenue bonds.  These bonds will be used to back securitiesrnissued by Freddie and Fannie which will, in turn, be purchased by Treasury.

It is anticipated that the funds generated through thesernbonds will support several hundred thousand new mortgages for first time homernpurchasers, provide refinancing opportunities for at-risk homeowners who arernunable to otherwise qualify for more affordable mortgages, and will supportrndevelopment of tens of thousands of new rental housing units for workingrnfamilies.

The program will temporarily allow the HFAs to issue anrnamount of bonds equal to what they would ordinarily be able to issue with the allocationsrnprovided them by Congress but are generally unable to do because of currentrnmarket challenges.  Participation willrngenerally not exceed what the HFAs should have received from Congress and willrnallocated in approximately the same ratio among state and local agencies.

HFA's can determine the proportion of their allocation to berndirected toward single or multi-family bonds. rnThe latter can be either for a single project or used to financernmultiple projects.

To minimize risk to taxpayers the HFAs will be required tornpay the GSA's and Treasury a fee to cover both the cost of the financing andrnthe risk posed by the HFA.  Interestrnrates will be set to equal the short-term Treasury rate for the period that thernfunds are held in reserve before being drawn down to fund mortgages and then,rn30 days after drawn-down, will increase to the 10-year rate plus thernrisk-offset fee.

To further reduce risk the HFAs will be obligated to sellrnshorter-term bonds to the private market in a ratio equal to 40 percent of thernbond proceeds.  This will also leveragerneven more low-rate mortgages.

A second part of the program, the Temporary Credit andrnLiquidity Program (TCLP) is being created in response to a number of challengesrnexperienced by the HFAs in the current housing downturn.  Under this program the GSEs will administerrntemporary credit and liquidity facilities to help the HFAs sustain existingrnhousing bonds and maintain the viability of the local programs.

Each HFA will be asked to develop a plan outlining itsrndesired level of participation and TCLP will cap these requests to an amountrnlarge enough to meet the existing demand. rnIf programs request more than is currently anticipated under the programrnthese amounts may be subject to additional caps.

There will also be a fee to participate in TCLP and this feernwill increase over time in order to encourage HFAs to transition out of thernprogram and back to private financing opportunities as quickly asrnpossible. 

In a press release announcing the dual programs TreasuryrnSecretary Tim Geithner said “This initiative is critical to helping workingrnfamilies maintain access to affordable rental housing and homeownership inrntough economic times.  Through thisrninitiative, the Administration aims to help HFAs jumpstart new lending tornborrowers who might not otherwise be served and to better support the financingrncosts of their current programs – key components in stabilizing the housingrnmarket overall.”

Ted Fellman, Executive Director of the Tennessee HousingrnDevelopment Agency was among many local executives speaking about thernprogram.  He said, “In Tennessee we stillrnhave a lot of potential first-time buyers sitting on the fence.  If we can get those buyers into the market,rnand this plan will help us do that, we could jump start our entire housingrnmarket.  Even with conventional rates asrnlow as they have been, it's still not enough for many working families tornachieve sustainable homeownership.  Thisrnwill go a long way towards changing that.”

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