With a little help from the U.S. Treasury, the Rhode Island Housing and Mortgage Finance Corp. plans a return to the housing bond market today after a nearly 15 month hiatus.

“We normally would be in the market about every four months or so, and we have held back from doing so since August of 2008 because the markets were so difficult,” said the corporation’s chief financial officer, Thomas Hogg. “The pricing in the markets for housing finance agencies has been very expensive and so we have held back waiting for either the markets to improve on their own or the Treasury program.”

A retail order period begins today on $30 million of tax-exempt fixed-rate bonds. Institutional pricing begins tomorrow. The bonds are callable after 10 years.

Bank of America Merrill Lynch will lead manage the deal. Kutak Rock LLP is bond counsel.

But that’s just the beginning: on Wednesday the issuer will place $101.1 million of bonds with Fannie Mae and Freddie Mac under the Treasury’s single-family new issue bond program that was created last month.

The debt will be sold in two series, with the proceeds of one being put into escrow. The issuer will market Series 1-A bonds as fixed-rate with a par of $30 million, to the public as serials with maturities out to 2020 and as term bonds with maturities in 2024 and 2027.

On the long end, the issuer will place $45 million of Series 1-B bonds 30-year term bonds with the two government-sponsored enterprises at a fixed rate. The split follows a ratio established under the program that requires 40% of the aggregate issuance to be to private investors and 60% to the GSEs.

Last week the Treasury allocated $29.1 billion to state and local housing finance agencies for the bond purchase program and for a liquidity program. After purchasing the bonds, the GSEs in turn sell the bonds to the Treasury. The programs expire at the end of the year, making it difficult for some issuers to use up all their allocations, but issuers have the option of selling bonds under the program this year with the intention of refinancing the debt.

The Rhode Island mortgage agency plans to do this by placing $56.1 million of variable-rate federally taxable bonds—its Series 2 bonds—with the GSEs and putting the proceeds in escrow.

The escrow bonds “will not produce funds that will be used for loans because we don’t have the loans yet,” Hogg said.

The Series 2 bond proceeds will sit in an escrow account for several months until the proceeds of series 1-A and 1-B have been used up, he said. At that time, the corporation plans to reissue the bonds as long-term, fixed-rate bonds using the same 40-60 ratio of sales to private investors and GSE placements they are using in the Series 1 bonds.

Hogg said that they are not required to sell bonds on the short end to private investors and on the long end to the GSEs, but the formula used to price the GSE-purchased bonds provides an incentive to do it that way. The GSE bonds will be priced at the rate of 10-year Treasuries plus a spread based on the bonds’ ratings.

Moody’s Investors Service rates the corporation’s outstanding bonds Aa2. Assuming the issuer maintains that rating, the GSE bonds would be priced at 75 basis points above 10-year Treasuries, according to a formula in the preliminary official statement. As of Friday afternoon, the 10-year Treasury yield was 3.356%.

The Rhode Island agency uses the bond proceeds to make  mortgages and finance home repair loans for low and moderate income families and individuals as well as to buy mortgages from participating lenders.

The corporation has sold $2.54 billion of bonds since 2000, according to Thomson Reuters. As the housing bubble burst and credit markets froze up, the corporation’s issuance went from a 10-year high in 2007 of $391.2 million to a 10-year low of $142.3 million last year.

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