The State of New York Mortgage Agency held off on selling $167.8 million of single-family mortgage bonds until the ink was dry on the new federal housing law. Now it can take retail orders beginning today for bonds that, for the most part, will not be subject to the dreaded alternative minimum tax.

"It's awesome for us," said SONYMA president and chief executive office Priscilla Almodovar. "We've been waiting for this bill."

Like other housing bond issuers across the country, housing finance agencies in the northeast are reacting quickly to the bill that President Bush signed last week. The legislation allows for an additional $11 billion of private-activity housing bond volume cap, tax-credits, bond recycling on multifamily housing projects and refinancing of subprime mortgages. All new housing bonds are exempted from the AMT.

Last week, the National Council of State Housing Agencies held a conference call with executive directors of housing finance agencies from across the country to field questions about the new law.

"The HFAs are hitting the ground running," said NCSHA executive director Barbara Thompson. "The states were delighted to hear there will not be any delay in being able to access the new bond and credit authority."

Thompson said that according to informal discussions with U.S. Treasury staff, there is no need for formal guidance on the cap that, other than its restriction to housing uses, can be treated like an additional allocation to their existing cap. The volume cap is allocated to larger states based on population, with smaller states receiving a set minimum.

Although SONYMA doesn't know yet how the market will respond to the non-AMT bonds, internal calculations project interest savings as high as 80 basis points.

"The market has to shift in thinking of housing bonds as not having AMT," Almodovar said.

The bonds will be sold as fixed-rate and variable rate. Goldman, Sachs & Co. will lead manage the sale. Hawkins Delafield & Wood LLP is bond counsel and Piper Jaffray & Co. is financial adviser. One of the series will be subject to AMT because it is refunding bonds that were subject to the tax. Institutional pricing begins tomorrow.

Of all the states in the northeast, New York will get the highest amount of new volume cap, $633.6 million. The state plans to divide the cap using the same state allocation statute it uses for all its private-activity bond cap, Almodovar said. Under that statute one third is divided among local issuers based on population, one third goes to state-level issuers, and one third is put into reserve.

Almodovar, who heads both SONYMA and the state Housing Finance Agency said that she will recommend that all of the state level's allocation of $211.2 million go to SONYMA to provide mortgages to first-time homeowners.

"More than ever, we've become the lender of last resort because conventional lenders have really tightened their lending standards on the first time homeowner side," she said. "What were finding is we've become a source of liquidity for first-time homeowners looking for mortgages."

SONYMA expects to use the new cap in a deal in October or November.

Last year, the agency sold $415 million of bonds, according to Thomson Reuters data. This year it expects to sell as much as $600 million, Almodovar said. Since 1999, the agency hasn't sold more than $465.4 million of bonds in a given year, according to Thomson Reuters.

The state HFA could still use some of the new cap to finance multifamily housing, but it would likely come from the reserve.

About half of the local portion is expected to go to the New York City Housing Development Corp., which finances affordable multifamily housing, Almodovar said. Like the state HFA, the city's HDC could get more from the reserve. "We certainly have a pipeline that can absorb any amount that was allocated to us," said HDC president Marc Jahr. The agency has about $700 million of tax-exempt deals in various degrees of readiness that could use the additional cap, he said.

"It certainly doesn't solve all of our problems in terms of the shortage of cap, but it does allow us to take a big bite out of that," Jahr said. The corporation will be ready to sell bonds with the additional cap before the end of the year, he said.

The HDC has sold $712.8 million of new money bonds so far this year, according to Thomson Reuters.

The housing law contains a provision that allows recycling on bonds issued for multifamily housing. In the past, low-income housing deals would use subsidies and tax credits to pay off a portion of the construction loan that had been financed through tax-exempt bond proceeds. When the construction period is over and the project converts to permanent financing, the portion of the bond cap that had been paid off was simply used up even though it had only been used for a short period of time. Recycling allows that portion of bond cap to be reused, though without tax-credits.

It "allows us to conserve cap that we'd otherwise have to use for deals and instead do a mix of tax-exempt recycled without credits and taxable bonds that will allow us to do a chunk of the pipeline as well," Jahr said.

This is useful in New York City, where some projects feature a mix of income levels where the tax credits can only be used for the low-income portion. In the past, volume cap was used whether there were tax credits available or not. Now a project can use bond cap with tax credits on the low-income portion and then use recycled cap without tax credits on any qualified portion of the project.

The recycled bonds have to be issued within six months of the repayment of the loan made from the original bonds, and those funds must be used within four years of the original bonds' issuance. In New York, the state HFA and city HDC will be able to recycle about $200 million to $250 million of cap annually, though not necessarily right away, said HFA spokesman Philip Lentz.

New York received $1.64 billion of cap this year. Toward the end of the year the Division of Budget typically allocates reserve and unused cap to the HFA and HDC. Over the past four years the HDC has received on average about $200 million of cap at the beginning of the year and about $275 in reserve or unused cap toward the end.

Northeast states sold $7.2 billion of housing bonds last year, according to Thomson Reuters data. The new volume cap adds $2.45 billion of cap to the region. The new cap can be used immediately or it can be carried forward.

The Pennsylvania Housing Finance Agency plans to do a $200 million deal for single-family mortgages in October or November using the new cap, said executive director Brian Hudson. The state, which is also starting a program to refinance subprime loans, could go through all of its new $408.2 million by the end of next year, he said.

Vermont has been waiting for the new law to price an approximately $40 million deal in the next few weeks so that it can take advantage of being able to sell bonds not subject to AMT. The state is still working out how to use the additional $101.2 million of new cap but expects that it will largely be used to finance single-family mortgages, said Vermont Housing Finance Agency executive director Sarah Carpenter.

"We've got a lot of work to do right away," she said.

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