The White House yesterday announced a new program to give lower income home buyers and renters a temporary boost in the marketplace.
The new program provides Federal financing to state and local housing agencies to subsidize low interest rates for hundreds of thousands of mortgages for low and middle income borrowers and to fund the development and rehabilitation of tens of thousands of affordable rental properties.
The Administration’s initiative has two parts: a new bond purchase program to support new lending by housing finance agencies (HFAs) and a temporary credit and liquidity program to improve the access of HFAs to liquidity for outstanding HFA bonds.
“This initiative is critical to helping working families maintain access to affordable rental housing and homeownership in tough economic times,” said Treasury Secretary Tim Geithner. “Through the years, many low and moderate income Americans have been well served by state and local HFAs, but the housing downturn has hit these organizations too. 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.”
“Housing Finance Agencies are critical partners to helping American families through this tough economic time,” Department of Housing and Urban Development (HUD) Secretary Shaun Donovan said. “Today’s announcement makes clear this Administration’s commitment to providing responsible homeownership opportunities and getting our housing market back on track.”
Using authority under the Housing and Economic Recovery Act of 2008 (HERA), Treasury will purchase securities of Fannie Mae and Freddie Mac backed by these new mortgage revenue bonds. The program can support several hundred thousand new mortgages to first-time homebuyers this coming year, as well as refinancing opportunities to put at-risk but responsible and performing borrowers into more sustainable mortgages. The new bond issuance will also support development of tens of thousands of new rental housing units for working families.
Fannie Mae and Freddie Mac will help state agencies reduce the costs of maintaining existing financing. The agreements will serve to help relieve financial strains experienced by HFAs and enable them to continue their important work. Treasury will backstop the GSE replacement credit and liquidity facilities for the HFAs by purchasing an interest in them using HERA authority.
The initiative is designed to be temporary in nature and will be available for only a short window to help bridge the transition period as the state and local agencies resume their activities after experiencing difficulties the housing downturn. Pricing under the program will reflect both the cost of any financing required by Treasury as well as a fee designed to cover any risk posed by the HFA.