A new initiative to stabilize the housing market was
announced on Monday by the Departments of the Treasury and Housing and Urban
Development (HUD). The initiative is authorized by the Housing
and Economic Recovery Act of 200 (HERA) and will be implemented primarily
through state and local Housing Finance Agencies (HFAs) with little cost to the
federal government.
Under the HFA Initiative, Treasury, HUD, the Federal Housing
Finance Agency (FHFA) along with Fannie Mae and Freddie Mac (the GSEs) will
establish a New Issue Bond Program (NIBP) which will provide temporary
financing allowing HFAs to issue new mortgage revenue bonds. These bonds will be used to back securities
issued by Freddie and Fannie which will, in turn, be purchased by Treasury.
It is anticipated that the funds generated through these
bonds will support several hundred thousand new mortgages for first time home
purchasers, provide refinancing opportunities for at-risk homeowners who are
unable to otherwise qualify for more affordable mortgages, and will support
development of tens of thousands of new rental housing units for working
families.
The program will temporarily allow the HFAs to issue an
amount of bonds equal to what they would ordinarily be able to issue with the allocations
provided them by Congress but are generally unable to do because of current
market challenges. Participation will
generally not exceed what the HFAs should have received from Congress and will
allocated in approximately the same ratio among state and local agencies.
HFA's can determine the proportion of their allocation to be
directed toward single or multi-family bonds.
The latter can be either for a single project or used to finance
multiple projects.
To minimize risk to taxpayers the HFAs will be required to
pay the GSA's and Treasury a fee to cover both the cost of the financing and
the risk posed by the HFA. Interest
rates will be set to equal the short-term Treasury rate for the period that the
funds are held in reserve before being drawn down to fund mortgages and then,
30 days after drawn-down, will increase to the 10-year rate plus the
risk-offset fee.
To further reduce risk the HFAs will be obligated to sell
shorter-term bonds to the private market in a ratio equal to 40 percent of the
bond proceeds. This will also leverage
even more low-rate mortgages.
A second part of the program, the Temporary Credit and
Liquidity Program (TCLP) is being created in response to a number of challenges
experienced by the HFAs in the current housing downturn. Under this program the GSEs will administer
temporary credit and liquidity facilities to help the HFAs sustain existing
housing bonds and maintain the viability of the local programs.
Each HFA will be asked to develop a plan outlining its
desired level of participation and TCLP will cap these requests to an amount
large enough to meet the existing demand.
If programs request more than is currently anticipated under the program
these amounts may be subject to additional caps.
There will also be a fee to participate in TCLP and this fee
will increase over time in order to encourage HFAs to transition out of the
program and back to private financing opportunities as quickly as
possible.
In a press release announcing the dual programs Treasury
Secretary Tim Geithner said "This initiative is critical to helping working
families maintain access to affordable rental housing and homeownership in
tough economic times. Through this
initiative, the Administration aims to help HFAs jumpstart new lending to
borrowers who might not otherwise be served and to better support the financing
costs of their current programs - key components in stabilizing the housing
market overall."
Ted Fellman, Executive Director of the Tennessee Housing
Development Agency was among many local executives speaking about the
program. He said, "In Tennessee we still
have a lot of potential first-time buyers sitting on the fence. If we can get those buyers into the market,
and this plan will help us do that, we could jump start our entire housing
market. Even with conventional rates as
low as they have been, it's still not enough for many working families to
achieve sustainable homeownership. This
will go a long way towards changing that."
UPDATE_10/23: http://www.treas.gov/press/releases/tg331.htm