SAN ANTONIO — Officials from the National Council of State Housing Agencies were hoping that Obama administration officials would announce a long-expected $35 billion bond purchase and liquidity program to coincide with their annual conference here yesterday, but the federal plan to expand the ailing housing bond market will have to wait, they said.

“I have spent several hours on the phone with [deputy assistant treasury secretary] Seth Wheeler this weekend,” Barbara Thompson, executive director of the NCSHA, told her members at an opening breakfast. “He told me, 'We’re not quite there yet. There are still a few details to be worked out.’ He asked us to continue to bear with them.”

The administration has confirmed that it is still planning to provide up to $20 billion to purchase state and local housing finance agency bonds for affordable housing. But the HFAs would face a very narrow window for issuing the bonds under a Dec. 31 deadline.

The Obama plan would also offer $15 billion of liquidity to help HFAs remarket their variable-rate debt obligations. Sources familiar with the proposal said that the administration is still trying to work out several key issues, such as how the $15 billion of liquidity would be dispersed to state and local issuers throughout the country.

A source also said that Treasury Department officials are working on answers to questions they anticipate receiving about the program, such as why the federal government is intervening in housing and not other areas of the municipal market.

Treasury legal experts say that any HFA bonds the department purchases through government-sponsored enterprises must be issued by Dec. 31, 2009, the sunset date for the Treasury’s authority to buy securities from the GSEs under the Housing and Economic Recovery Act of 2008.

Even with previous federal support, through $11 billion in additional private-activity bond volume cap, issuance by state and local agencies has dried up. Investor demand for housing bonds — representing the sector that led the nation into recession — has fallen, particularly at the low interest rates such bonds would offer.

The largest players in the secondary market, Fannie Mae and Freddie Mac, have been out of the muni market since 2006, amid their own financial problems. Other traditional bond purchasers — such as banks, mutual funds, and insurance companies — have limited their purchases or dropped out of the housing bond market altogether.

As of Sept 25, HFAs have sold only 91 single-family housing bond issues with a total par amount of $4 billion, compared to 232 issues totaling roughly $10 billion in the same period last year and 355 issues at $16.1 billion in 2007, according to Thomson Reuters.

The HFAs sold only 42 issues totaling almost $1.7 billion of multifamily housing bonds as of Sept. 25 of this year, compared to 98 issues totaling almost $2.6 billion during the same period of 2008 and 106 issues worth over $2.0 billion in 2007.

If the Treasury program does come through as promised, institutional investors are going to be needed to soak up the supply,

However, financial experts are seeing a market for the HFA bonds forming in the wings, Marc Dispense, senior vice president at George K. Baum & Co., told housing officials yesterday.

“I don’t think the retail demand is going to be strong enough to support that,” Dispense said.

But Emily Heller, executive director at JPMorgan, said an institutional market is shaping up for housing bonds.

“As the Fed does start to withdraw from the market, your program should start to look more attractive,” she said.

“In the last five or six months, we’ve seen a real turn in the market,” Dispense said. “Retail investors have been supporting everybody’s bond issues. But we really do have institutional investors lined up on the sidelines waiting to buy your bonds. I think they’ll pay — or overpay — for them.”

Record low rates offer “a historic opportunity to execute refunding,” said Geoffrey Proulx, executive director at Morgan Stanley.

But demand for new home loans “has been so anemic that we haven’t seen the need to go back to the market since January,” said Marian Zucker, executive vice president for housing programs and policy at the New York State Housing Agency.

Andrew Ackerman contributed to this story.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.