WASHINGTON - Four months after members of the House Financial Services Committee introduced four pieces of municipal bond-related legislation, only two are expected to move forward this fall and the other two are likely to languish.
One of the bills expected to move through the House would require rating agencies to rate municipal and other securities similarly - only on the likelihood of timely repayment to creditors. The other would impose a fiduciary standard on all municipal financial advisers and require them to register with the Securities and Exchange Commission.
Congressional sources say they are hopeful that these two bills will be approved as part of an omnibus regulatory reform package later this fall.
The other two muni bills may have no future. One would authorize the Federal Reserve to establish a temporary liquidity facility for variable-rate demand obligations, while the other would authorize the Treasury Department to run a temporary reinsurance program that would cover insured municipal credits.
But the Fed and the Treasury remain reluctant to develop and oversee these kinds of programs, which would provide further assistance to the markets, in part because they are working to unwind the economic recovery programs they put in place last fall when the financial crisis began, sources said. Almost none of those programs covered the municipal bond market. Further, federal officials no longer believe that municipal issuers are blocked from accessing the capital markets as they were last fall, the sources said.
The Financial Services Committee has put these two bills on the back burner while it works on regulatory reform, according to a congressional source. The committee staff still supports them, but they have been out of the spotlight for several weeks, the source said. The staff, for instance, has not discussed the liquidity facility bill with the Treasury since July, he said.
Since it remains unlikely that either of these bills will be enacted into law, some market participants are turning to federal agencies that can use their existing authority to provide assistance to the muni market.
For instance, market participants in the hospital sector are using the Department of Housing and Urban Development's Section 242 program, which provides mortgage insurance for certain hospital financings and was recently expanded to cover refinancings.
Charles Samuels, a lawyer with Mintz Levin Cohn Ferris Glovsky & Popeo PC here who is counsel to the National Association of Health and Educational Facilities Finance Authorities, said his members are happy to get some assistance in situations where the existing insurance on their bonds from downgraded insurers "has proven to be more a weight than a help."
NAHEFFA also is supportive of legislation expected to be proposed later this year that would make HUD's Section 242 program more flexible and useful for a broader range of hospitals, he said.
Meanwhile, several groups and other market participants have been hopeful that Treasury would unveil the details of a liquidity facility for housing variable-rate demand obligations, which has been in the works for several months but has been repeatedly delayed for reasons that are unclear.
The liquidity facility would be run by mortgage giants Fannie Mae and Freddie Mac with oversight from the Treasury, unlike the more general facility envisioned by the House Financial Services Committee. Some $25 billion of housing-related VRDOs were issued by state and local housing finance agencies between the beginning of 2004 and the end of last year, representing about 15% of the overall amount of outstanding VRDOs, according to market participants.
Though the Treasury officials have told market participants since the spring that the housing VRDO facility would be unveiled soon, the perpetual delays have led some to question whether it will in fact ever get off the ground. One market source, however, said that the latest scuttlebutt is that it could be announced at a housing conference in early October.
Meg Reilly, a Treasury spokeswoman, declined to comment on "ongoing discussions about programs under consideration."
"We are always exploring new ways to address these economic issues so it's not uncommon for ideas that we explore to not result in program roll-outs," she added.