Wisconsin Law Blog

Date: 10/30/2008 6:02 PM

By ANDREW WELSH-HUGGINS
Associated Press Writer


COLUMBUS, Ohio (AP) _ The financial meltdown has come down hard on the nation’s housing finance agencies, which provide tens of thousands of mortgages to first-time poor and moderate-income home buyers.

West Virginia has stopped going to market with bond sales, as has Illinois’ housing development authority. Ohio canceled a long-planned $150 million bond sale after the credit markets froze. Wisconsin suspended its entire loan program.

California temporarily suspended two of its long-term loan programs and removed two other down payment assistance programs.

“The banks are getting all this money and we don’t have access to anything,” said Ken Giebel, spokesman for the California Housing Finance Agency. “The people who were part of the problem, which we weren’t, are getting support and being bailed out and we can’t do our programs.”

At issue is the ability of the housing agencies to borrow the money they need to process mortgages by selling bonds at affordable interest rates. As the financial crisis exploded, it was virtually impossible to sell bonds at all, especially those associated with mortgages. As the markets have opened up, some sales are possible but at higher interest rates, which mean higher costs to taxpayers.

New York’s housing finance agency sold $110 million in bonds a week ago, for example, but at more than a full percentage point higher than earlier this year.

The squeeze on credit is also coming at a time when unemployment is rising and revenue from property, sales and other taxes is falling — in some cases sharply.

State HFAs helped finance 119,920 mortgages in 2006, according to the most recent data. That’s a fraction of the 6-plus million homes sold a year, but represents an important segment of the housing market: first-time homeowners who may not be wealthy but have money for down payments and good credit histories.

The agencies offer only traditional, fixed-interest, long-term mortgages and often require home buyers to undergo counseling about home buying before receiving a loan.

The agencies also play a role alleviating part of the foreclosure problem, since many people taking out loans used them to buy foreclosed properties.

“Now many of those borrowers don’t have capital to purchase those homes,” said Rachel Basye, spokeswoman for the Colorado Housing Finance Authority, where one in three of the agency’s loans this year went to homeowners purchasing foreclosures.

Getting the housing finance agencies back on their feet is crucial to restarting the housing market, said Pat Begg, director of secondary marketing at Columbus, Ohio-based Huntington Bancshares.

“To get the housing market off the ground you’ve got to get the first-time buyer off the fence and back into the market,” Begg said.

One of the biggest problems is trying to sell bonds for housing in a market whose crash originated, at least in part, with the mortgage industry.

“When you see the word mortgage, it’s almost toxic,” said Joseph Knopic, finance director for the Pennsylvania Housing Finance Agency. “Now you have to tell your story — ‘Here’s what we do. We don’t have those kinds of mortgages.'”

The agency issued about $800 million in housing bonds in 2007 compared to about $400 million so far this year. The Pennsylvania agency, which normally processes about 7,000 loans a year, has only done 4,000 so far this year.

In Wisconsin, the state Realtors association says the suspension of the state loan program, while not beneficial, is not the end of the world.

The test will come the longer the program is off line and the longer the overall housing market takes to bounce back.

“But the mortgage market in general, for people who are qualified, have a down payment and good credit history, is still there,” said Joe Murray, government affairs director for the Wisconsin Realtors Association.

State and local governments across the country are having trouble raising capital, the Government Finance Officers Association said in its October newsletter.

This week, the national associations of mayors, counties and local housing finance agencies wrote to Congress and Treasury Secretary Henry Paulson asking them that to direct the government conservators of Freddie Mac and Fannie Mae to resume buying tax-exempt single-family and multifamily housing bonds.

In Kansas, the city of Topeka went ahead with a planned sale of $41 million in bonds and notes Oct. 7, only to receive an interest rate 1 percentage point higher than normal. The result: an additional $150,000 annual cost to taxpayers to pay off the debt.

Alarm bells went off earlier this month when California said it might need federal government help with access to short-term credit to cover operating costs for schools, nursing homes and police.

Massachusetts had to twice delay selling $750 million in short-term cash-flow notes to pay state bills because of the poor credit market.

But it eventually sold the notes Oct. 8 at a healthy 2.2 percent rate, giving California confidence the state wouldn’t need a federal leg up.

The state sold $5 billion in short-term notes last week, prompting credit rating agency Standard & Poor’s to lift a negative watch on the state’s general obligation bonds.

HFA executives say some of the government’s recent actions, including the injection of money directly into banks, put the housing finance agencies at further disadvantage.

“We can’t access the capital as favorably as Fannie Mae can,” said Roy Alexander, executive director of the Colorado Housing and Finance Authority.

“They now have an advantage they didn’t have before,” he said. “We would love to be able to go directly to the treasury to get funding for our programs.”

Treasury had no immediate comment.

In Ohio, the housing finance agency temporarily suspended its loan program assisting people with down payments. It also canceled a planned $150 million bond sale rather than to go to market and see it fail.

“That’s another negative — it’s like, ‘Now what?'” said Brad Knapp, president of the Ohio Association of Realtors. “First time home buyers are the spark plug that gets things going for us.”

Ohio’s HFA sold a smaller $72 million package Oct. 29.

“If we can’t issue tax-exempt bonds, that means we don’t have the capital that we need to fund the mortgages,” said Bob Connell, the Ohio agency’s debt management director.

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On the Net:

National Council of State Housing Agencies: http://www.ncsha.org

Copyright 2008 The Associated Press.