Housing agencies that provide financing to low-income borrowers are expected to get a much needed boost from the Treasury, according to a Bloomberg report.
The Treasury is expected to announce a new program, administered by the GSEs, in which as much as $15 billion in “fresh liquidity” would be generated for up to three years.
As part of the program, up to $20 billion in tax-exempt mortgage bonds issued by state- sponsored housing finance agencies could be purchased by the likes of Fannie Mae and Freddie Mac through the end of the year.
The Treasury would likely provide a federal backstop for a number of liquidity facilities, though plans are still being finalized and are expected to be released as soon as Wednesday, per an unnamed source.
Housing agencies, which finance their mortgage offerings with variable-rate debt (VRD), haven’t been able to find buyers for the related bonds, forcing them to convert the debt to higher-cost bank bonds.
Groups like the California Housing Finance Agency and similar outfits have suffered as a result of the mortgage crisis, with higher funding costs and reduced liquidity shuttering many other agencies throughout the country.
These groups have apparently financed more than 2.6 million first-time homebuyers, though it’s unclear what the performance of the related loans has been.
Many of these programs require little or nothing down, an issue that has led to increased defaults, foreclosures, and walk-aways, as borrowers really have no skin in the game.
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