WASHINGTON — The Treasury Department will work with Congress and state and local governments in the coming weeks to devise specific subprime mortgage relief measures that are likely to include an increase in the annual private-activity bond volume cap for expanded mortgage revenue bond issuance, a department official said yesterday.
Treasury Secretary Henry Paulson said Monday that the department is “aggressively pursuing a comprehensive plan” to minimize the impact of the housing downturn on the U.S. economy and that Congress needs to act “to temporarily increase capacity and allow state and local governments new flexibility to use tax-exempt bonds for home mortgage refinancings.”
Paulson included the remarks in a speech before the Treasury Office of Thrift Supervision’s National Housing Forum.
Responding to questions in an interview yesterday, spokesman Andrew DeSouza explained that the Treasury has not yet solidified the housing relief measures it hopes to propose to Congress.
DeSouza said he could not discuss specifics, including a dollar amount of additional bonding authority that could be provided to housing finance agencies. He said Treasury plans to consult with Congress on the issue, taking into account the needs of state and local governments.
The temporary volume cap increase could be earmarked for certain subprime mortgage refinancings for the next several years, according to market sources.
Refinancing subprime mortgages — many of which are set to adjust to higher rates in 2008 and 2009 — with bond-backed, fixed-rate mortgages at lower rates would result in cheaper mortgages. The proposal would require a legislative change, since the tax code currently allows single-family mortgage revenue bonds to finance only new mortgages, not refinancings.
Treasury is now attempting to schedule meetings with appropriate members of Congress and their tax staffs. “This is a priority for the secretary, and for the administration,” DeSouza said. “We’re doing this with all due diligence. It’s at the top of our list.”
Decisions regarding how the relief measures could be enacted are “a question for Congress,” he said. “They will have to decide what is appropriate.”
Housing bond advocates said they welcome Paulson’s announcement that subprime relief measures are likely to include an increase in the volume cap, which limits state and local governments’ annual issuance of private-activity bonds.
“That’s very good news to hear,” said John Murphy, executive director of the National Association of Local Housing Finance Agencies.
Murphy said he will be interested to see the specific elements determined in Treasury’s talks with Congress. “I think we’re all casting about to find the right number that can accommodate the situation,” he said.
Barbara J. Thompson, executive director of the National Council of State Housing Agencies, shared Murphy’s view. “We’re so delighted that they’re proposing more resources. That’s what’s critical,” she said.
Thompson also expressed hope that federal officials will consider state housing finance agencies’ other needs when enacting relief, including an expanded volume cap for other housing uses.
“We want to serve both new homeowners — to keep them out of the subprime trap so that we never repeat this terrible situation — and those that are in bad loans, to get [them out],” Thompson said. “Why not provide it in a more flexible basis so [HFAs] can respond to their most serious needs?”