Donovan: HUD, Treasury Looking at Housing Bond Liquidity

WASHINGTON — Housing and Urban Development Secretary Shaun Donovan said yesterday his team is working closely with the Treasury Department to find ways to ensure liquidity for existing housing bonds, as well as a reliable market for new bonds.

Speaking at the National Association of Local Housing Finance Agencies’ spring conference here, he noted that although housing agencies can now issue an additional $10 billion of bonds thanks to this summer’s massive housing relief law, market conditions have made it nearly impossible to utilize that additional authority.

“Even with the additional $10 billion in bonding authority that Congress gave you last summer, given the state of the credit markets today, we must go farther than that and help you find an outlet for those bonds and help you find liquidity for those bonds,” Donovan said to a raucous round of applause.

“Though some sanity has returned to the credit markets, there continue to be very limited outlets for the work that you do,” he added. “We have been working very closely with Treasury … to find ways to both ensure liquidity for existing bonds that are out there, as well a ready market — even if we have to create it ourselves — for the sale of bonds that you will issue going forward.”

One way the federal government could boost the housing bond market would be to permit government-sponsored enterprises Fannie Mae and Freddie Mac to both purchase tax-exempt housing bonds at favorable interest rates and provide liquidity to support HFA lending programs, sources said.

NALHFA and other groups, including the National Governors Association, have pressed the federal government to allow Fannie and Freddie to rejoin the tax-exempt market, and Obama administration officials are said to be hard at work coming up with a plan.

Donovan also said that while HUD had to spend the past eight years under the Bush administration “woefully underfunded” and “playing defense,” the upcoming Obama budget, which will be released in the next few weeks, will show a “very clear commitment” to the department.

In the summary of his fiscal 2010 budget request released at the end of February, President Obama asked for $4.5 billion for the community development block grant program. Donovan said funding for that program, which provides grants to state and local governments to fund economic development projects and can be used in projects financed by municipal bonds, is the first step in a “broader promise” to return HUD programs to “full health.”

“This is a new day going forward,” he said.

Donovan, a former NALHFA member when he was chairman of the New York City Housing Development Corp., received a warm welcome from the group, book-ended by standing ovations at the introduction and conclusion of his speech.

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