HFAs Seek an Extension For NIBP Conversions

WASHINGTON — Local housing finance agencies have asked the Treasury Department to push back the Dec. 31 deadline for converting short-term taxable bonds to long-term, tax-exempt, fixed-rate bonds under its New Issue Bond Purchase program, warning they will have trouble meeting it.

They made the request during the National Association of Local Housing Finance Agencies’ Washington policy conference held here last week. Local HFA officials asked Michael Barr, the Treasury’s assistant secretary for financial institutions, if the department could extend the deadline by six to 12 months, to ensure it is used to its fullest potential, according to John Murphy, NALHFA’s executive director.

“We basically raised this with Secretary Barr and it was the first he’d heard of it,” Murphy said this week.

Under the NIBP program, which was announced last October, the Treasury agreed to purchase $15.3 billion of state and local HFA bonds through Fannie Mae and ­Freddie Mac in an attempt to boost housing bond issuance, which has been hampered for years by adverse market conditions.

The Treasury, at that time, also provided HFAs with a temporary credit and liquidity facility for existing single-family and multifamily bonds. The HFAs have obtained $8.2 billion of liquidity from that program.

Under the NIBP, issuers had to sell the bonds by the end of 2009 and place the proceeds in escrow. The bonds, typically sold as short-term taxable debt, were to be converted this year to longer-term tax-exempt bonds, the proceeds of which would be used to originate new mortgage loans. Any proceeds left by the end of 2010 would have to be used to redeem the outstanding bonds, according to the program’s requirements.

However, many local HFAs feel squeezed by that time frame and warn several issues could hamper their ability to fully use the program by the end of the year.

“The problem has always been that that was a very short time frame,” said Jim Shaw, executive director of the Capital Area Housing Finance Corp. in Austin and current president of NALHFA.

For HFAs, the 12 months they have to finance mortgages with these bonds is actually being pressured on both ends. On the front end, the agencies have had to spend the first few months of 2010 educating and training lenders and reviving infrastructure that has been on the sidelines for several years because of the lackluster market.

“All these bond issuers have really been out of the market for quite some time ... [and] there’s been a tremendous amount of turnover,” Shaw said. “We’re really just now starting to see the program take off.”

“A lot of issuers have not been able to launch single-family bond programs for a couple of years, everyone is getting their capacity back in place in terms of their lender networks, and that’s taking a little bit of time,” agreed Mark Ulfers, executive director of the Dakota County Community Development Agency in Eagan, Minn., and a NALHFA board member.

And on the back end, if HFAs want to group mortgages in mortgage-backed securities or pools, they likely will need to convert their bonds by mid-October, and HFAs would like to originate the mortgages before converting to avoid negative arbitrage or losses.

“You’re really left with a very, very short origination period,” Shaw said.

In addition, some potential homebuyers are still sitting on the sidelines, waiting to see if the housing market has bottomed out, further slowing the process.

“Buyers are holding back a little bit … until they’re sure the real estate prices have dropped to the lowest possible level,” Ulfers said.

“We certainly wouldn’t want to see any of the resource go to waste, the need is definitely there,” he added. “Once the infrastructure is in place ... there should be no reason this money shouldn’t be fully utilized.”

Even if Treasury officials are receptive to extending the program’s lifespan, the question remains as to whether they could unilaterally extend it or if a statutory fix from Congress would be necessary.

Barr would not commit to a fix coming from within the Treasury, according to those in attendance at the NALHFA conference, but HFA officials are optimistic it could be handled without requiring Congress to rewrite the law.

“Our hope is that it wouldn’t take a legislative fix,” Shaw said.

Treasury officials could not be reached for comment.

Meanwhile the Federal Reserve Board stopped purchasing mortgage-backed securities yesterday, bringing to a close a 15-month stretch where it bought $1.25 trillion of the securities, driving down interest costs.

Murphy said yesterday that it is impossible to know what ultimate impact the Fed’s departure will have on the HFAs. But he said it is expected to lead to higher interest rates, which in turn could open the door to more HFA deals.

“We’ll just have to see where it comes out,” he said.

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