HUD Secretary, Treasury to Offer HFAs More Liquidity for Bonds

Department of Housing and Urban Affairs Secretary Shaun Donovan said yesterday that he is working with the Treasury Department to provide state housing finance agencies with more liquidity for their bonds.

Donovan, the first cabinet member to publicly push for federal action to aid muni bond issuers under the federal economic recovery programs, told Senate Banking Committee members at a hearing that Treasury officials could help HFAs in two ways.

First, he said, they can make sure there is "adequate liquidity" for HFAs having trouble remarketing their outstanding variable-rate bonds, whose rates have skyrocketed since the credit crisis.

Second, he said, the Treasury can ensure that there is an "adequate market out there" for tax-exempt housing bonds that HFAs need to sell.

Donovan said he recognizes that HFAs have been unable to use the $11 billion of private-activity bond volume cap that Congress gave them last summer because of the liquidity problems in the bond market.

Sen. Mark Warner, D-Va., a member of the committee, told Donovan that he hopes the secretary will be an advocate inside the administration for helping struggling municipal issuers across the spectrum.

Even though several lawmakers have been seeking help for issuers, "we've not heard a lot of specificity about how Treasury would restart the muni market," Warner said. There is a "whole host of muni bonds that could be sold for projects," many shovel-ready, he said, but they have yet to be issued because state and local governments cannot access the market at reasonable interest rates.

Barbara Thompson, executive director of the National Council of State Housing Finance Agencies, said she is "very confident" that the administration is moving "full speed ahead" in finalizing the details on the state housing finance agency plan to provide assistance to the HFAs.

"HUD is so important to the understanding of this issue [and to] making sure the plan moves forward," Thompson said. "This may be a Treasury initiative, but HUD is very much at the table."

President Obama said when he introduced his housing plan last week that the administration will work with Fannie Mae and Freddie Mac on "other strategies to bolster the mortgage markets, like working with state housing finance agencies to increase their liquidity."

The NCSHA and other housing groups have been pushing for the Treasury or the government sponsored enterprises to directly purchase housing bonds because the HFAs have been unable to access the market at reasonable interest rates. Thompson said she expects administration officials to detail the housing plan on March 4.

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