Obama Administration Announces New Plan to Help State & Local Housing Agencies

Oct. 19, 2009— -- The Obama administration today announced a new effort to help battered state and local housing agencies provide mortgage help to hundreds of thousands of homeowners.

The administration said the new plan will help keep mortgage rates low, and increase resources for low and middle income borrowers to buy or rent homes.

"This initiative is crucial to helping working families maintain access to affordable rental housing and homeownership in tough economic times," Treasury Secretary Tim Geithner said in a statement. "Through the years, many low and moderate income Americans have been well served by state and local HFAs, but the housing downturn has hit these organizations too."

Over the years, state and local housing finance agencies have helped over 3 million working families get financing for new homes, but they have been hurt by the current financial crisis.

The administration's new two-pronged initiative, operating under a law passed by Congress last year, will consist of a bond purchase program to support new lending by these agencies, and a temporary credit and liquidity program to boost agency access to credit sources for their existing bonds.

The eventual size of the program will be set according to agency demand, but it does have a ceiling, said Michael Barr, Treasury's assistant secretary for financial institutions, during a conference call with reporters this afternoon.

"The program levels are really being built from the ground up," Barr said. "We need to have a much more refined sense of both demand and eligibility to determine the appropriate scaling of the program."

Whatever the eventual size of the program, Barr said American taxpayers will be reimbursed through fees paid to Fannie Mae, Freddie Mac, and the Department of the Treasury. All these agencies are major backers of mortgages.

"There will be strong taxpayer protections," he said, adding that the "expected cost to the federal government is zero" because of these fees.