Feds Asked to Support Housing Bond Issuance, State HFA Liquidity
By Caitlin Jones
3 min read
Tax Credit Advisor, May 2009: The federal government is being asked by take steps to help state housing finance agencies (HFAs) issue housing bonds and to improve their liquidity. If taken, such actions could bolster debt financing for 4% low-income housing tax credit projects.
Adverse market conditions have made it difficult for HFAs to issue new tax-exempt bonds to fund below-rate rate mortgages for first-time home purchases and to finance development of affordable rental housing.
In a recent letter to the secretaries of the U.S. Departments of Treasury and Housing and Urban Development (HUD), the National Council of State Housing Agencies (NCSHA) said, “…State HFAs currently are unable to sell long-term Housing Bonds at interest rates that allow them to lend bond proceeds affordably. As a result, all HFAs have severely curtailed and several have suspended their lending programs.”
According to NCSHA, as of March 2009, state HFAs reported they could issue a total $15 billion in housing bonds in 2009 and $18 billion in 2010.
“NCSHA believes it is critical that Treasury create a market for state HFA tax-exempt Housing Bonds by purchasing them directly or through the housing GSEs, Fannie Mae and Freddie Mac,” the letter says.
NCSHA’s letter expresses desire that Treasury buy, or facilitate GSE purchases of, housing bonds at interest rates that enable state HFAs to lend the bond proceeds at interest rates 50 basis points or more below market rate, while covering their bond issuance costs. Treasury is also urged to purchase bond-financed loans or mortgage-backed securities held by HFAs.
In addition, NCSHA asks that Treasury provide standby liquidity facilities to help state HFAs remarket short-term variable-rate debt (VRD) obligations they’ve already issued or issue in the future. NCSHA’s letter says HFAs now have $23 billion in VRD outstanding, with another $1.5 billion expired or set to expire by year-end. Finally, Treasury is asked to join with the Federal Housing Finance Agency to work with Fannie Mae and Freddie Mac to design a program where GSEs buy loans from the HFAs.
Separately, in a letter to the secretaries of Treasury and HUD, House Financial Services Committee Chairman Barney Frank (D-MA) and two colleagues urged the Obama Administration to take certain specific steps à similar to those proposed by NCSHA à to facilitate issuance of single-family mortgage revenue bonds by state HFAs and to bolster the liquidity of HFAs.
The National Governors Association in a letter to Treasury Secretary Timothy Geithner has proposed several specific steps to improve liquidity for state HFAs and help them issue tax-exempt and taxable housing bonds.
