The National Governors Association, key lawmakers, and a group representing state housing finance agencies are all urging the federal government to help provide liquidity for housing bonds, arguing the HFAs could issue $9.7 billion to $15 billion of debt this year if they had federal assistance.
The National Governors Association sent a letter April 1 to Treasury Secretary Timothy F. Geithner urging three actions for the government to take to stimulate the flow of housing bonds.
The Treasury and Federal Reserve System could establish a special liquidity facility for housing finance agencies' variable-rate debt to help the HFAs that are struggling to remarket that debt, the NGA said.
Fannie Mae and Freddie Mac could also purchase tax-exempt and taxable housing bonds at favorable interest rates and provide liquidity to support HFA lending programs, the group said.
In addition, the Federal Housing Finance Agency could support state and local HFAs by offering liquidity through Fannie, Freddie, and federal home loan banks, the letter said.
The NGA told Geithner that, as of December, HFAs had $9.7 billion worth of housing bonds they could bring to market if they had liquidity providers, and that some of them have been forced to shutter their single-family programs.
"This stalled market has forced state HFAs to curtail lending just when citizens need them to be more active," said the letter. It was co-signed by NGA chairman Edward G. Rendell, governor of Pennsylvania, and vice chairman James H. Douglas, governor of Vermont, as well as New Jersey Gov. Jon S. Corzine and South Dakota Gov. M. Michael Rounds, who lead the association's economic development and commerce committee.
More recently, 45 state HFAs reported that, as of last month, that they could issue $15 billion of housing bonds this year and another $18 billion in 2010 if the market were more receptive to housing bonds, the National Council of State Housing Agencies said in a March 13 letter to Geithner and Housing and Urban Development Secretary Shaun Donovan.
"That's an indication of the demand for mortgages they see from their potential customers, low and moderate income," said Garth B. Rieman, director of housing advocacy and strategic initiatives for the NCSHA.
"With a little help from the administration, the HFAs can jump in and really help," Rieman said. He added that a growing inventory of homes for sale at decreasing prices amplifies the need for federal assistance with single-family and multifamily housing bonds.
The administration is expected to announce within weeks its decision on how it would provide assistance, Rieman said, cautioning that he could not be more specific on the timing.
The NCSHA asked Treasury to buy tax-exempt housing bonds directly or through Fannie and Freddie, at interest rates that would allow state HFAs to use the bond proceeds for below-market rate loans. The Treasury should also back HFAs' variable-rate debt with standby bond purchase agreements or letters of credit in order to help with difficult remarketings, it said.
Lawmakers urged similar actions in a March 31 letter to Geithner and Donovan.
The letter was signed by Democratic Reps. Barney Frank of Massachusetts, who chairs the House Financial Services Committee, Maxine Waters of California, who chairs the subcommittee on housing and community opportunity, and Carolyn B. Maloney of New York, who chairs the Joint Economic Committee. They called on the administration to "create" a mortgage revenue bond market either by purchasing the bonds through the Treasury or directing Fannie and Freddie to buy home loans that are provided for home purchases or for mortgage refinancings.
"Moreover, such purchases should be at affordable, below-market interest rates, consistent with the historical advantage that MRBs have provided relative to conventional rates," the letter said.
The lawmakers echoed the NCSHA's request for Treasury to back HFA variable-rate debt, saying difficult remarketings have caused mortgage interest rates to climb and forced some states to convert the debt to more expensive bank bonds.
They touted congressional actions last year to authorize $11 billion of new tax-exempt housing bonds, allow HFAs to use mortgage revenue bonds to refinance subprime mortgages, and remove the alternative minimum tax from housing bonds. But those actions were insufficient to spur housing bond issuance because of "adverse credit markets," the lawmakers said.