New Administration Initiative Aims to Aid Housing Bond Market
By Caitlin Jones
3 min read
Tax Credit Advisor, November 2009: The Obama Administration on October 19 announced a temporary new two-part initiative to enable state and local housing finance agencies (HFAs) to issue new housing bonds and remarket existing variable-rate demand obligations (VRDOs).
For over a year, HFAs have been stymied in trying to issue and sell new tax-exempt mortgage revenue bonds to fund below-market mortgages for first-time buyers of modest-priced homes and new tax-exempt bonds to finance new affordable multifamily housing projects, including projects assisted by low-income housing tax credits. HFAs have also been hard pressed to remarket their outstanding VRDOs, short-term bonds used both to fund lower-rate home mortgages and low-rate financing for new multifamily projects.
Under the Administration’s New Issue Bond Program (NBIP), the U.S. Treasury Department will buy new Fannie Mac or Freddie Mac securities backed by new housing bonds issued by participating state and local HFAs. New bonds can be issued to fund new home mortgages, to refinance existing mortgages of at-risk homeowners, or to fund mortgages for new multifamily projects.
Permitted new multifamily bond issues will include those to finance single projects, and to fund multiple projects approved or guaranteed by Fannie Mae, Freddie Mac, or the Federal Housing Administration.
Under the second, new Temporary Credit and Liquidity Program (TCLP), HFAs will be able to obtain from Fannie Mae or Freddie Mac replacement credit and liquidity facilities – for single-family or multifamily bonds, or VRDOs – that will be backstopped by Treasury. Replacement facilities must be arranged by 12/31/09.
A state or local HFA must take certain steps to participate in either program, including expressing its desired level of participation and its allocation between single-family and multifamily bonds.
Under NBIP, all new bond issuances and Treasury securities purchases must occur by 12/31/09. Bond proceeds will be escrowed until used by HFAs to fund new mortgages in 2010. Before HFAs can use single-family proceeds, they must sell to the private market an amount of shorter-term bonds equal to 40% of the aggregate bond proceeds. The remaining 60% will be bonds purchased through NIBP.
The National Council of State Housing Agencies (NCSHA) praised the new initiative. “The Administration has now cleared the way for HFAs to finance tens of thousands of affordable homes for America’s working families, while generating jobs and tax revenue in support of the economy,” said Susan Dewey, president of NCSHA and executive director of the Virginia Housing Development Authority.
