Bond Program Fees Too High, HFAs Warn

WASHINGTON — The Treasury Department this week allocated $29.1 billion to state and local housing finance agencies for temporary new-issue bond purchase and liquidity programs, but some small HFAs are warning the fees they would have to pay to participate in the purchase program are prohibitively expensive.

“It’s a serious concern for us and very well could be a dealbreaker,” said John Murphy, executive director of the National Association of Local Housing Finance Agencies.

The new issue bond purchase program, or NIBP, is designed to help create a market for new single-family and multifamily housing bonds issued by the HFAs, which have been hurt by the downturn in the housing market. Under the program, the Treasury will purchase Fannie Mae and Freddie Mac securities backed by the new HFA bonds.

But the program requirements call for HFAs to pay a minimum $50,000 entrance fee to ­participate and at least $60,000 more in legal fees to the government-sponsored enterprises’ attorneys to review the bond ­documents.

James Shaw, executive director of the Capital Area Housing Finance Corp. in Texas and vice president of NALHFA, said yesterday that these charges are likely to keep him and other small agencies out of the program.

“I’m having a very difficult time understanding the fees at their current level,” he said. “That’s very probably a deal killer.”

The federal government agreed to purchase $83.5 million of new single-family and multifamily housing bonds from the CAHFC, most of the $85 million it requested.

HFA officials have complained about the fees to the Treasury Department and GSEs and asked them to reconsider the levels. They have been told their complaints are under review.

HFAs must also pay a fee to participate in the temporary credit and liquidity program, or TCLP, which is to provide replacement credit and liquidity facilities to HFAs for existing single-family and multifamily variable-rate demand obligations. HFAs have had trouble remarketing their VRDOs because the financial institutions they relied upon to do so and serve as buyers of last resort have either withdrawn from the market, been downgraded by credit rating agencies, or are charging excessive fees and imposing unfavorable terms on issuers.

The HFAs must pay a small percentage of the bonds’ principal, ranging from 0.40% to 1.25% initially, depending on the unenhanced rating of the debt. Those percentages are scheduled to rise every year in an attempt to encourage the agencies to look elsewhere for liquidity in the future.

However, the clock keeps ticking on these programs, since HFAs must issue new debt and apply for liquidity for existing debt by Dec. 31. Most HFAs are planning on issuing short-term taxable notes at the outset, with the intention of replacing them next year with tax-exempt offerings.

Federal officials notified state and local HFAs last Friday about their individual allocations, but the overall numbers were not released until this week.

Although the government committed $18.6 billion to the NIBP, housing finance agencies requested $22.4 billion in allocations: $17 billion of single-family and $5.3 billion of multifamily bonds. The Treasury awarded $13.9 billion of single-family allocations and $4.6 billion of multifamily allocations.

The allocations were made based on formulas established by the Housing Economic and Recovery Act of 2008.

Every state, plus the District of ­Columbia and Puerto Rico, requested allocations under the NIBP. Twenty-one of them — Alaska, Delaware, Hawaii, Indiana, ­Kansas, Maine, Michigan, ­Mississippi, Missouri, Montana, Nebraska, New ­Jersey, New Mexico, North Carolina, Ohio, ­Oklahoma, South Carolina, Tennessee, Vermont, West Virginia and ­Wisconsin — had those requests fully met.

Another seven — Arizona, California, Colorado, Georgia, Illinois, Texas and Washington — received at least 90% of their requests. California, which has the nation’s largest HFA, received an ­allocation of $2.3 billion under the ­program.

Five states — Alaska, Connecticut, Louisiana, Utah and Virginia — received only about half of their requests.

The federal government also agreed to spend $10.5 billion on the TCLP. But just 12 states requested to participate in that program, and each received their full request.

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