The Treasury Department announced several changes Wednesday to its new issue bond purchase program for housing finance agencies, most notably that it is extending by one year through 2011 its deadline for converting short-term taxable bonds to long-term, tax-exempt bonds.
In addition, the amount of times an HFA is permitted to draw funds from escrow has been increased to six from three, according to a letter sent to participating agencies by the Treasury assistant secretary for financial institutions Michael Barr.
However, HFAs will still be limited to only one draw in any 30-day period while they still have funds in escrow.
“We didn’t get everything we asked for, but we got a lot,” said John Murphy, executive director of the National Association of Local Housing Finance Agencies. “This will certainly help.”
HFAs have to opt into these changes by Sept. 13 by submitting a notice to State Street Global Advisors, which is administering the program for the Treasury.
Under the NIBP, which was announced last October, the Treasury agreed to purchase $15.3 billion of bonds through Fannie Mae and Freddie Mac from over 90 state and local HFAs in an attempt to boost housing bond issuance.
Issuers had to sell the bonds by the end of 2009 and place the proceeds in escrow. The original rules stated that the bonds, typically sold as short-term taxable debt, had to be converted to longer-term tax-exempt bonds by the end of this year.
The proceeds would then 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, several local HFAs warned the Treasury that they would have difficulty meeting that conversion deadline, in part because of the fact that record low interest rates for private mortgages made it difficult for HFAs to compete.
HFAs participating in the single-family NIBP that wish to take advantage of the changes must pay a participation fee of one basis point per year on their total outstanding single-family NIBP balance. The fee is designed to offset the cost to the federal government in making the changes, Barr said, and agencies are expected to bear the costs of making the necessary changes to their own documentation.
