US Treasury to plan aid for state housing agencies

WASHINGTON: The US Treasury Department plans a new liquidity and mortgage bond purchase programme to help state finance agencies that provide mortgages to low-income borrowers, Treasury officials said.

The programme would provide as much as US$15 billion (RM52.17 billion) in fresh liquidity for as long as three years and would purchase as much as US$20 billion in tax-exempt mortgage bonds issued by state-sponsored housing agencies through the end of this year, a person familiar with the matter said. The programme may be announced as early as Sept 30, said the person, who didn’t want to be named because the plans haven’t been made public.

The Treasury effort would be administered by federally controlled mortgage-finance companies Fannie Mae and Freddie Mac, which would also purchase the bonds, the person said. Those purchases would provide enough financing to restart and to fund the state home loan programmes through the end of next year, according to the person.

The California Housing Finance Agency and other state programmes have suffered along with the rest of the mortgage industry with higher funding costs and restricted liquidity over the last 18 months.

Many of the state programmes, which have financed more than 2.6 million first-time homebuyers, have been shuttered as investors recoiled from the market and demand for their mortgage bonds faltered amid the worst housing market since the Great Depression, according to the National Council of State Housing Agencies.

Higher debt costs, record-high foreclosure rates and lower investment income contributed to a broad-based decline in profitability across the sector last year, according to Moody’s Investors Service.

To lower funding costs, the Treasury will provide a federal backstop for several liquidity facilities, the person familiar with the matter said. Administration officials are still hammering out the plan’s final details, which may change, Treasury officials said.

One in 10 mortgage borrowers in the US is behind on their loan payments and one in every 25 homes is in foreclosure, Fannie Mae chief executive officer Michael Williams said in a Sept 9 speech in Washington. Homeowners across the country have lost an average of 40% of their equity, making refinancing more difficult, he said. – Bloomberg LP