A new three-component partnership between HUD and the Department of the Treasury was announced on June 26. One of the components would help the rental market, while two would help homeowners and the homeowner market.
Under the component that would help the rental market, the Federal Financing Bank (FFB), housed at Treasury, will support the construction and preservation of rental housing by financing multifamily loans insured under the Federal Housing Administration’s (FHA) Risk-Sharing program. According to press releases from HUD and Treasury, this will significantly reduce the interest rate for affordable multifamily apartment buildings compared to the cost of tax-exempt bonds under current market conditions. FFB is authorized to fund any obligation fully guaranteed by another federal agency. Under the Risk-Sharing program, FHA covers 100% of the outstanding principal balance plus 100% of the accrued interest if there is a default.
The first deal in this arrangement will be conducted in partnership with the New York City Housing Development Corporation (NYC-HDC) to support restoration of affordable rental housing damaged by Super Storm Sandy in Far Rockaway, Queens.
According to the National Council of State Housing Agencies (NCSHA), “The Risk-Sharing Program has traditionally provided state Housing Finance Agencies (HFAs) with a sustainable low-cost source of financing to support the development of affordable multifamily properties, but the recent economic downturn had made it difficult for HFAs to use the program efficiently. Consequently, the Administration, along with NCSHA and its member agencies, has been pushing Congress to allow Ginnie Mae to securitize loans issued under the program. Allowing the FFB to finance such loans will help lower costs in the interim.”
FHA Commissioner Carol Galante said in a HUD press release, “To help the many hard working families who cannot find affordable rental housing, we are partnering with the Treasury Department, to broaden our efforts to create and preserve safe, decent and affordable rental housing by allowing more Housing Finance Agencies access to the capital they need to build or maintain affordable multifamily apartment buildings.”
Under the second component of the new partnership, Treasury is extending the Making Home Affordable (MHA) program through December 31, 2016. MHA allows underwater homeowners to permanently modify their mortgages to avoid foreclosure. Treasury reports that the program has served more than 1.3 million homeowners to date.
Finally, Treasury announced a new effort to spur lending in the private label securities (PLS) market. According to a Treasury press release, “Prior to the housing crisis, private label securities provided access to credit for many qualified Americans who did not meet Government Sponsored Enterprises (GSEs) and FHA eligibility requirements…Since the crisis, Treasury officials have been working with regulators to put in place reforms that address the flaws in the securitization and lending practices that played a role in the financial crisis. Nevertheless, many of the largest investors have not returned to the market, resulting in very little issuance and few mortgage financing options for borrowers aside from government-supported channels.”
To better determine how to rebuild the PLS market, Treasury issued a Request for Comment in the Federal Register on June 30. Treasury indicated that a series of forthcoming stakeholder meetings will be held to explore ways in which private lending can be increased.
The HUD press release is at: http://1.usa.gov/1mOjO5n
The Treasury press release is at: http://1.usa.gov/TO9lvq
The NCSHA blog is at: http://bit.ly/1oVxWtU
The Treasury press release with details about the PLS request for comment is at: http://1.usa.gov/1mdPiTY
The Treasury Federal Register request for comment is at: http://1.usa.gov/1tIc1vd