DALLAS — Bankers say they expect to see more Texas housing issuers sell bonds to finance loans for people who live within the areas included in the federal Gulf Opportunity Zone Act — not only because of the demand for mortgages by those affected by last year’s hurricanes, but also because of the favorable terms of such debt.
The GO Zone law authorizes the issuance of up to $7.9 billion of private-activity bonds exempt from state caps to finance recovery efforts in areas affected by hurricanes Katrina, Rita, and Wilma last summer.
Bonds issued for housing under the GO Zone law can be applied to residential loans filed by Jan. 1, 2011. In addition, the GO Zone rules relax earlier criteria for eligible homebuyers.
“The mortgages financed by these bonds are not just limited to first-time homebuyers,” said Robin Miller, a senior vice president in First Southwest Co.’s housing division. “The program also increases the annual income of eligible borrowers as well as the purchase price.”
The program sets the maximum annual income of eligible home buyers in the GO Zone associated with Hurricane Rita at $65,160 for a single or two-person household, and $76,020 for families of three or more. The IRS also recently increased to $289,705 the maximum home sale price limit for the program.
In Texas, the so-called Rita GO Zone includes the following counties: Chambers, Galveston, Hardin, Jasper, Jefferson, Liberty, Newton, Orange, Tyler, Angelina, Brazoria, Fort Bend, Harris, Montgomery, Nacogdoches, Polk, Sabine, Saint Augustine, San Jacinto, Shelby, Trinity, and Walker.
To date, there have been three issues of GO Zone mortgage revenue bonds by Texas housing issuers: a $4.74 million deal by the Texas State Affordable Housing Corp., a $15.639 million offering by the Jefferson County Housing Finance Corp., and a $105.4 million issue this week by the Texas Department of Housing and Community Affairs.
All three deals have priced at 25 basis points below market rates. For instance, the Jefferson County HFC closed its GO Zone mortgage deal on Tuesday. That deal, which priced at 105.50, carried a 5.16% coupon on a bullet maturity in 2039 — and 25 basis points below the rate awarded on a deal by the Tarrant County Housing Finance Corp. on the same day. Freddie Mac was the sole purchaser of the Jefferson County agency bonds.
“Certain investors, particularly Freddie Mac, have made a concerted effort to support recovery in the GO Zone areas in Louisiana and Texas,” said Michael Marz, a vice chairman at First Southwest, which served as financial adviser for both the TSAHC and Jefferson County deals. “We’ve seen in these deals that this subsidy is usually about 25 basis points.”
Gary Machak, a managing director at RBC Capital Markets Inc., which served as financial adviser to the Texas housing department, said Ginnie Mae, Fannie Mae, and Freddie Mac are buying GO Zone mortgage bonds at reduced interest costs, depending on the market.
“In keeping with our mission to support the recovery of areas affected by last year’s storms, on Oct. 12 of last year, we made a $1 billion commitment to buy mortgage revenue bonds for the Gulf Coast area at below-market rates,” said Brad German, director of public relations for Freddie Mac.
Marz said the reduced interest cost allows issuers to provide below-market-rate mortgages to buyers.
“It lowers the cost of funds,” he said, adding that the mortgage rate for the Jefferson County bonds, for instance, is 5.8% — well below the current market rates of 6.75%.
Miller said there are a number of additional GO Zone mortgage deals on the horizon, including an approximately $10 million issue by the Hardin-Orange Housing Finance Corp. and a Harris County Housing Finance Corp. deal for about $25 million. He added that the Fort Bend County Housing Finance Corp. is also considering a similar issue.
“If Jefferson County exhausts its bond proceeds, they could approach the state after Jan. 1 to get a new allocation for 2007,” said Miller, adding that the agency and its affiliated lenders have been deluged with inquiries from potential borrowers.
