CHICAGO — A handful of Midwestern state housing authorities, most of them shut out of the credit market this year, are acting to take advantage of the U.S. government's temporary new-issue bond program to jump-start their ability to provide new mortgages.

Midwestern housing agencies have more than $1.5 billion of issuance planned under new trust indentures established to participate in the government's program.

The agencies include the Nebraska Investment Finance Authority, the Indiana Housing and Community Development Authority, the North Dakota Housing Finance Agency, the Wisconsin Housing and Economic Development Authority, the Iowa Finance Authority, the Missouri Housing Development Commission, and the South Dakota Housing Development Agency. Rating reports are available on about $9 billion of issuance planned nationally.

The new-issue bond program, or NIBP, provides temporary financing assistance for new single-family housing bonds to fund new mortgages and lets HFAs issue housing bonds to support new mortgages on multifamily properties.

NIBP was unveiled by President Obama in October to aid housing agencies shut out of the market after the housing sector collapsed amid the international financial crisis late last year. They have struggled as their traditional investors — including banks, mutual funds, and insurance companies — have shunned housing-related issuance.

Under the program, the Treasury Department will purchase Fannie Mae and Freddie Mac securities backed by these new housing bonds. State and local housing HFAs submitted $22.4 billion in allocations. The government committed $13.9 billion in single-family allocations and $4.6 billion for multifamily allocations. The allocations were made based on formulas established by the Housing Economic and Recovery Act of 2008.

The government has two settlement dates on which the Treasury will purchase Fannie and Freddie securities from HFAs — Dec. 23 and Jan. 20. To qualify for the December date, final agreements had to be in place and a preliminary offering statement issued by Dec. 9. The January settlement's deadline is Dec. 23.

The amount of issuance purchased by the Treasury as term bonds for single-family issuance is capped at 60%, while 40% must be sold to the private market. The multifamily program does not have the same restriction. Because of the end-of-the-year deadline, HFAs can issue escrow bonds and convert the debt to long-term bonds in up to three transactions over the course of next year as they need to fund new mortgages.

Unlike many state housing agencies, the North Dakota HFA was able to continue to access the market and secure liquidity during last year's credit freeze. Chief financial officer Patrick Nagel said his state has been able to avoid most of the economic and housing problems afflicting the rest of the nation, and that the agency is on track this year for record sales.

The agency issued $80 million of new-money debt, representing the 40% that must be sold in the private market, and it is selling $145 million to Treasury. It will put the proceeds from the $145 million sale into escrow.

The agency opted to issue debt under the new program as a way to capture interest rates similar to variable-rate debt but without taking on the floating-rate risk, according to Nagel.

"All the rating agencies are significantly more critical of what you have on your balance sheet, so your stress-test scenarios are more difficult to pass successfully," he said. "With this new program, we were able to borrow long term at rates that are as attractive as if we were to do variable-rate debt with a swap."

Like other housing issuers, the North Dakota HFA has relied largely on retail buyers to purchase its debt since last year's market turmoil. Relying on the retail market has cost the agency more in underwriting fees as managers work harder to find investors, Nagel said. Having the government as a buyer will help with that, he said, but institutional buyers are still scarce.

"By the government saying they'll buy the longer-term bonds, that takes the strain off of the underwriters," he said. While the serial bonds offered in the agency's recent sale were oversubscribed, it was still hard to find retail buyers for its 20-year term bonds.

"The serial bonds are attractive to the retail market, so those really aren't a problem to sell," Nagel said. "On the medium-term bonds that the government was not buying, they were very difficult to find investors, as your typical retail investor doesn't want to go out 20 years."

Overall, Nagel said the program has worked well and he predicts it will help jump-start a market that badly needed it.

"I'm very pleased they were able to come up with something that was able to help agencies, because I think if housing does well, everything else follows," he said. "Housing has received a lot of negative press, but if you look at state HFAs, our portfolios across the nation are performing well."

The Wisconsin agency is participating in the December closing. It is selling a total of $325 million of bonds. Moody's Investors Service assigned its Aa3 to $69 million of taxable multifamily housing bonds and its Aaa to $255 million of single-family housing bonds. The agency is escrowing the proceeds. Standard & Poor's rated the $255 million AAA.

"We have not issued so far this year, so this program is providing market access for us," said Wisconsin housing treasury manager Sherry Gerondale. The agency typically sells between $300 million to $500 million of housing bonds annually. It is participating in the December closing to take advantage of its 2009 private-activity volume cap allocation.

"Given the past performance of WHEDA's management, the rating and outlook are expected to remain stable," said Standard & Poor's analyst Moraa Andima.

The Nebraska agency is issuing $134 million of taxable single-family homeownership revenue bonds. The authority will hold the proceeds in escrow until demand for the loans opens up next year.

The Indiana agency is selling $225 million of triple-A home-first program mortgage revenue bonds under the new program. It opted to hold proceeds in escrow.

The South Dakota agency plans to sell its full program allocation of $193.1 million of escrow bonds in the January closing . The agency expects to begin converting the debt to long-term bonds in March, selling 40% as required under the program to retail investors, said agency director Mark Lauseng.

The program's main benefit will be a low interest rate for the Aa3-rated debt. "It seems like the rate is better than what the market will be paying at that time," he said.

The Missouri agency is selling $260 million of single-family mortgage revenue bonds with the proceeds going into escrow under the program. The bonds carry a AAA from Standard & Poor's.

The Iowa agency is issuing $300 million of single-family mortgage bonds under the program.

The three series — one of $16 million, a second of $24 million, and a third of $260 million — have top ratings from Moody's. The $16 million series was marketed to investors, while the remainder is being placed with the Treasury.

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