Obama Plan Could Help Provide Liquidity to HFAs, Work With GSEs

President Obama unveiled a $275 billion housing plan aimed at quelling the foreclosure crisis yesterday that will help provide more liquidity to state housing finance agencies.

"We're also going to 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," Obama said in a speech in Phoenix describing the Homeowner Affordability and Stability Plan.

But it was not yet clear how the administration will work with Fannie and Freddie and the housing finance agencies. Further details of the plan will be released when the program takes effect on March 4.

Barbara Thompson, executive director of the National Council of State Housing Finance Agencies, said the president's statement indicates that his administration has heard NCSHA's requests, one of which was that the Treasury Department or the GSEs directly purchase housing bonds because the HFAs have been all but locked out of the market due to high interest rates.

"We know that they were looking ... to support the housing bond market, and we know they were looking at a variety of options that included Treasury purchase of housing bonds, either directly, or through the GSEs with some type of Treasury support," Thompson said.

During the past few months, NCSHA has been working with the new administration, lawmakers, and officials at the Department of Housing and Urban Development and the Treasury to encourage the federal government to step in to help HFAs, she said.

Federal officials also have been looking into the problem that HFAs have had with remarketing their variable-rate debt.

"We know that options also on the table included creating a liquidity facility through Fannie and Freddie that would serve as a backstop to allow the remarketing of that variable-rate debt," Thompson said.

The administration's plan would: allow homeowners to refinance mortgages owned or guaranteed by Fannie or Freddie to lower interest rates; provide $75 billion, mostly from the Troubled Asset Relief Program, to reduce monthly mortgage payments for qualified homeowners; and direct the Treasury to provide up to $200 billion of additional capital to Fannie and Freddie to help stabilize the mortgage market.

In addition, the Treasury and Federal Reserve will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities so that there is stability and liquidity in the marketplace, Obama said. The Treasury also will increase current limits on the size of the GSEs' mortgage portfolios by $50 billion to $900 billion, as well as their allowable debt outstanding, according to a White House fact sheet.

The administration and Treasury officials "recognize that Congress identified state HFAs as key partners in the housing and economic recovery bill passed last summer when they entrusted us with $11 billion in new authority [in a new housing law enacted last year]. And I think they're very interested in putting that resource to work," Thompson said. "They recognize the only way to do that is to unlock the housing bond market. We are confident that they will come forward with a very strong plan for doing that."

John Murphy, executive director of the National Association of Local Housing Finance Agencies, said he expects local HFAs also will be included in the plan.

"We hope what it means is there's going to be some ability for the federal government to buy housing bonds," he said. "They recognize that housing finance agencies, both state and local, can play a constructive role in fixing the housing crisis."

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