June 11, 2010

On June 8, Standard and Poor's (S&P) released a report entitled "The US Treasury's New Issue Bond Program Offers Housing Finance Agencies Possible Increased Market Access" which outlines the results of the New Issue Bond Program (NIBP) and how S&P believes HFAs will handle the conclusion of the NIBP at the end of the year.

The report summarizes the program, noting that it was created last October in response to the increased difficulty HFAs encountered in issuing their affordable-housing bonds and providing mortgages for lower-income individuals.  Since 2006, bond issuance from HFAs declined from $30 billion to $10 billion in 2009.  In response, Treasury launched the NIBP and began to purchase securities from Fannie Mae and Freddie Mac, backed by new HFA mortgage revenue bonds. 

The report also describes the results of a recent Treasury survey on the program.  At the start of the program, HFAs anticipated assisting more than 128,000 borrowers in 2010.  The survey, which was conducted in March, showed that at that time HFAs had originated mortgages for 7,700 borrowers through the NIBP and 5,800 loans were in the process of being originated.

The program is set to expire on December 31, 2010.  Housing agencies have asked Treasury to extend the program into 2011, which would grant HFAs more time to convert short-term taxable bonds into long-term, tax exempt, fixed-rate bonds.  However, S&P reports that there is no indication that Treasury will extend the program.  As a result, S&P anticipates 2010 to end with an increasingly competitive market, as many HFAs will draw down the majority of their funds from escrow in the last quarter and rush to issue market bonds in an attempt to use their remaining bond allocation.

Since S&P issued its report, Treasury has told NCSHA and the HFAs that it is favorably disposed toward extending the deadline for HFA conversion of short-term escrow bonds.  NCSHA, Treasury, Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency are developing a plan for implementing this extension.