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U.S. Housing Act Has Had Little Impact So Far, Panelists Say

CHICAGO - The federal government's attempt over the summer to pump life into the housing market with the Housing and Economic Recovery Act of 2008 has so far had little impact, as the larger economic turmoil has rendered parts of the legislation nearly irrelevant, participants at The Bond Buyer's Midwest Public Finance conference said here yesterday.

To address some of the act's shortfalls, housing finance advocates are now pushing Congress to implement a number of provisions that would inject some equity into the housing sector, said panelists discussing housing finance.

"In July [when HERA was enacted], the sense was that at the core of our current economic situation is the housing market, but what's happened since then has rendered a lot of what was intended in the act not irrelevant, but somewhat more difficult to implement at the near term," said Robert Labes, a Cleveland-based partner at Squire, Sanders & Dempsey LLP. "Some in the industry are trying to push to really finish the job that was intended to be begun with the act."

Part of the problem is that HERA's provisions did not anticipate the credit crunch, panelists said. The lack of credit and equity in the housing market make it likely that most states will not take advantage in the near-term of HERA's much-touted $11 billion increase in the private activity bond allocation cap, said panelists.

"What we need is for the marketplace to pick up and then the tools put into place by this act will be of greater importance to us," Labes said.

Many financially troubled borrowers will remain unaffected by the new law, said Joseph O'Keefe, vice president of investment banking at Butler Wick & Co. It's expected that about 440,000 borrowers would benefit from the act, and that it could eventually benefit one to two million borrowers in total. But experts estimate that about seven million borrowers are in need of federal aid.

"The problem is still considerable, and the federal relief is not set to the level it should be," O'Keefe said.

And while the new law expanded the authority of federal home-loan banks to provide letters of credit for tax-exempt projects, some difficulties remain, said Barbara Watkins, assistant general counsel for the Federal Home Loan Bank of Chicago. For example, the home loan banks are allowed to issue credit enhancement only on bonds issued from the time of legislation in July through Dec. 31, 2010.

"We've gotten a lot of inquires from investment banks and members wondering if we can come in to credit-enhance a remarketing issue and to date we haven't been able to do that," she said. "There are great legal minds at work trying to determine if there is some way that existing bonds can be refunded or restructured so they would fit into this new legislative authority."

It is expected that the Dec. 31, 2010, deadline will be extended in the future.

Last week the 12 federal home loan banks requested that they be allowed to issue letters of credit for a wider type of economic development project, Watkins said. While HERA expanded the banks' authority to write letters of credit for tax-exempt economic development projects, the projects must fit into a set of criteria that the banks hope to expand.

"If we receive a positive response, it would greatly expand the type of economic development projects we could enhance, both taxable and tax-exempt," she said.

The multifamily tax exempt bond market has been particularly hard hit by the current credit crunch and fallout in the larger housing market. In part that's because developers often paired the issuance of tax-exempt bonds with the federal low-income tax credit for financing - and the low income tax credit equity market has dried up, according to Labes.

To address the problem, some housing advocates are lobbying Congress to enact a number of measures that would reform the low-income tax credit claimed by investors, thereby stimulating the tax-exempt multifamily bond market. Such reforms might be included in a second stimulus package that is likely either during the upcoming lame-duck session or once President-elect Barack Obama takes office, Labes said.

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