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.
Under the new bond program, the Treasury Department will purchase securities of government-sponsored mortgage giants Fannie Mae and Freddie Mac, backed by these new mortgage revenue bonds.
The program, the administration said, can support several hundred thousand new mortgages to first-time homebuyers this current year, as well as refinancing opportunities for responsible borrowers who would have trouble getting new loans otherwise. The money from the new bonds, said the administration, will also support the development of tens of thousands of new rental units for working families.
Under the temporary credit and liquidity program, government-sponsored enterprises Fannie and Freddie will provide replacement credit and liquidity facilities to these agencies that will help them reduce the costs of maintaining existing financing. Treasury will back the new replacement facilities by purchasing an interest in them.
In recent months, the administration's housing help efforts, unveiled in February, have come under criticism for taking too long to get off the ground, a charge they refuted today.
"The plan is working," Treasury, the Department of Housing and Urban Development, and the Federal Housing Finance Agency said in a fact sheet. "Millions of Americans have refinanced to lower rates, mortgage markets are helping families buy their own homes, and our modification initiative is giving households a second chance to stay in their homes."