Treasury Secretary Announces New Initiative to Support FHA-HFA Risk-Sharing Loans

Treasury and HUD will partner together in a new initiative to lower the financing costs for HFA multifamily loans originated through the FHA-HFA Risk-Sharing Program, Secretary of the Treasury Jacob Lew announced June 26. During remarks delivered at the five-year anniversary summit for the Making Home Affordable program (MHA), Lew said that he had directed Treasury’s Federal Financing Bank (FFB) to use its authority to finance mortgages insured under the Risk-Sharing Program. Mary Miller, the Treasury Under Secretary for Domestic Finance, indicated that Treasury was considering enacting such a policy in a speech a couple week ago.

The Risk-Sharing Program has traditionally provided state HFAs with a sustainable low-cost source of financing to support the development of affordable multifamily properties, but the recent economic downturn had made it difficult for HFAs to use the program efficiently. Consequently, the Administration, along with NCSHA and its member agencies, has been pushing Congress to allow Ginnie Mae to securitize loans issued under the program. Allowing the FFB to finance such loans will help lower costs in the interim.

To start the initiative, FFB will fund Risk-Sharing mortgages originated by the New York City Housing Development Corporation (HDC). FFB is authorized to fund any obligation that is fully guaranteed by another Federal agency. The Risk-Sharing program meets this requirement because FFB would purchase certificates or securities evidencing undivided beneficial ownership interests in 100 percent HUD/FHA-insured mortgages and HUD/FHA would cover 100 percent of the outstanding principal balance plus 100 percent of accrued interest in the event of a mortgage claim.

Lew also told the audience that the housing market needs to attract more private capital to serve low- and moderate-income borrowers effectively. To this end, Lew said that Treasury intends to bring together mortgage investors and bond dealers to discuss ways to jumpstart the private label mortgage securities market. In addition, Treasury also posted a notice seeking public comment on how to help structure a well-functioning mortgage securitization market. Comments on the notice are due August 8.

Lew also announced that the MHA initiative will be extended for at least an additional year through 2016.