October 20th, 2009 (Modified on October 22nd, 2009)

Update2: State Housing Programs Get A Boost



UPDATE2: The proposal which we wrote about late last month — that state housing finance agencies (HFAs) could receive some serious Federal financing — was confirmed yesterday by the White House.

A joint release from the Treasury Department, HUD, as well as the Federal Housing Finance Agency (FHFA), announced a “comprehensive plan to stabilize the U.S. housing market.” The goal is to provide “hundreds of thousands of mortgages” to low and middle income families:

…the Administration’s initiative has two parts: a new bond purchase program to support new lending by HFAs and a temporary credit and liquidity program to improve the access of HFAs to liquidity for outstanding HFA bonds.

Taxpayer Risk

According to the release, this aid is structured to come at “little or no cost to the taxpayer,” since the HFAs will be required to pay a fee designed “to cover both the cost of financing the newly issued bonds as well as a fee designed to cover risk posed by the HFA.” For more on taxpayer protection, read the “Protecting taxpayers” section of the Treasury’s fact sheet (page 2).

However, just because Washington has set up several safe guards to protect taxpayer funds, doesn’t mean the program is free of risk. Back in September the Wall Street Journal warned that “If the housing agencies default on their debt obligations, taxpayers could lose out” (see original post below).

Lack of Private Money

HFAs have suffered — like most sectors of the housing industry — from a lack of private investors. The collapse of Lehman Brothers was especially traumatic for the state housing finance agencies who sell “tax-exempt mortgage revenue bonds” in order to drum up the capital that allows them to issue new mortgage loans, writes National Mortgage News.

Unable to find private buyers for their bonds, this latest program will provide the HFAs with temporary financing through the end of this year so they can issue new loans throughout 2010. The second facet of the initiative will offer temporary credit and liquidity in order to provide “stability” in this tough market.

Encouraging Signs

What we find encouraging about this latest program — unlike the other housing rescue programs currently in place — is that the government isn’t disrupting the old system by creating new expectations. HFAs will continue their business model with the same amount of funding that they are used to:

These requests for new issuance should generally not exceed what the HFA would have received in allocation from Congress for a similar period through 2010 and will generally follow the allocation formula established for 2008 by HERA. If program demand is smaller than these guidelines would allow, the total program size will be capped at a lower amount. This bottom-up review is being used to prudently shepherd taxpayer resources, and the program will not be sized any larger than needed to meet specific demand.

Furthermore, it’s encouraging that Washington took a very measured and effective response to solve a specific problem (the lack of liquidity), rather than instituting another large and complicated public program.

Both the joint release and the Treasury’s fact sheet don’t mention a price tag at the moment. We’ll keep you updated to this program’s impact on taxpayer dollars.


Original post, “Local Housing Could Get $35 Billion in Aid,” published on 09/29/09: There are several approaches you can take when reacting to the announcement that Washington has proposed kicking in $35 billion to support local housing. While some lawmakers — most notably Barney Frank in recent months — have advocated for additional home-ownership programs (some which cater to low-income and under-qualified borrowers), other lawmakers, like Rep. Scott Garrett (R., N.J.), feel that instead of becoming more involved in housing, the government should be withdrawing itself.

The idea of another Federal program committing billions in assistance amidst a soaring national deficit is lost on some, yet deemed necessary by others.

The pending bill is designed to provide funding to state housing finance agencies  (HFAs) which cater to low-income borrowers:

The Treasury Department, along with government-controlled mortgage giants Fannie Mae and Freddie Mac, is expected to buy as much as $20 billion of new housing bonds issued by the state agencies. It will also provide $15 billion in additional funding, as needed, to help the agencies continue to use a type of cheap, short-term financing.

If the housing agencies default on their debt obligations, taxpayers could lose out. The Treasury plans to charge fees to agencies that want to sell new long-term bonds to the government based on their individual risk factors, to help reduce the risk of default and protect taxpayers.

According to Deborah Solomon of the Wall Street Journal, state housing finance agencies aren’t in trouble because of subprime lending, they’re suffering for the same reason many other sectors of the housing industry are suffering: a lack of private money.

From the WSJ:

The agencies aren’t in trouble because of subprime lending or bad loans. Rather, they have found it increasingly hard to find investors willing to buy the mix of tax-exempt and taxable bonds that [housing finance agencies] HFAs sell to fund mortgages.

Interest rates have surged on municipal bonds, making it harder for the agencies to offer their less-expensive mortgage rates to borrowers. As a result, most HFA lending has come to a halt. California and Texas have suspended their lending activities altogether.

How many Americans benefit from HFAs? The Journal says that HFAs tend to fund about 100,000 mortgages annually, or about 4.6% of the nation’s outstanding mortgages.

What’s your reaction? Is this a case of over-spending, is our government supporting the borrowers that led to the housing crisis in the first place? Or, is this just another piece of the housing recovery puzzle?

If you have received assistance from an HFA, let us know, we want to hear your story!

UPDATE1: HSH.com offers the complete list of HFAs for all the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. For more information, be sure to visit our page on state housing finance agencies.
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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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