Role of Housing Finance Agencies in the Foreclosure Crisis

November 14th, 2008 | Tags: Foreclosure Crisis

Housing finance agencies have an important role to play in dealing with the foreclosure crisis. Loans disbursed by these agencies are largely used to buy foreclosed properties. These mortgage homeowners are not wealthy people, but individuals with money to make the down payment and with good credit histories. With the housing financing agencies being badly hit by the foreclosure crisis, loans are no longer available to this group of homeowners. This means that foreclosed properties cannot be bought by them. To rejuvenate the housing market, it is necessary to get the housing finance agencies back on their feet.

Since the foreclosure crisis originated at least partly in the mortgage industry, the word “mortgage” itself has become sheer poison. As aptly described by Joseph Knopic of the Pennsylvania Housing Finance Agency, “When you see the word mortgage, it’s almost toxic”. Hence it has become virtually impossible to sell bonds for housing. The value of housing bonds issued till now this year is about half the value of bonds issued the previous year.

The October newsletter of the Government Finance Officers Association said that governments, both state and local, throughout the country, are facing problems in raising capital. National associations of mayors, local housing finance agencies as well as counties have written to the Congress. They have asked that the government conservators of Fannie Mae and Freddie Mac should be directed to again start purchase of single-family as well as multi-family housing bonds, which are exempted from taxes.

Topeka city in Kansas sold $41 million in bonds and notes last month. The interest rate received was 1 percentage point higher than normal. This mean $150,000 additional annual cost to tax payers in order to meet the debt burden. Earlier this month, California said that it may require help from federal government and short-term credit to meet the operating costs for nursing homes, schools and the police. This set off alarm bells ringing.

Executives of housing finance agencies feel that government actions like injecting money directly into banks has put the agencies at a greater disadvantage. According to Roy Alexander of Colorado Housing and Finance Authority, the agencies cannot access capital as easily as Fannie Mae. “They now have an advantage they didn\’t have before,” Alexander said. “We would love to be able to go directly to the treasury to get funding for our programs.” The Treasury refused to comment.

As summed up by Brad Knapp of the Ohio Association of Realtors, “First time home buyers are the spark plug that gets things going for us”.