[u]REQUIRED READING:[/u][/i] On Oct. 19, 2009, the Obama administration announced the launch of a federal initiative to support the continuation of low mortgage rates with the simultaneous expansion of resources to aid low- and moderate-income borrowers.[/b] The conduit for achieving these goals was the state and local housing finance agencies (HFAs). ‘Housing finance agencies are critical partners to helping American families through this tough economic time,’ said Shaun Donovan, secretary of the Department of Housing and Urban Development, when the initiative was unveiled. Donovan's department, along with the Department of the Treasury, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac, collaborated in structuring the HFA initiative. At a time when the mortgage banking industry has faced unprecedented challenges, many of the nation's HFAs have stepped forward with their own innovative and proactive strategies to encourage the vibrancy of the mortgage origination market. This has not been easy, considering the HFAs themselves have been faced with recession-induced difficulties that slowed – or, in a few cases, halted – their single-family home-buyer activities. ‘We need to get back into single-family lending, and we are in the process of developing the parameters of programs in that area,’ says Ken Giebel, director of marketing for the California Housing Finance Agency (CalHFA). ‘We have not had much activity in the past 14 to 18 months.’ HFAs in the states that were hardest hit by the economic crisis are literally sharing the pain with their housing markets. CalHFA has been allocated $699.6 million in federal aid to help low- and moderate-income homeowners who have been affected by the state's double whammy of rising unemployment and falling home values. ‘We're trying to manage a 30,000-loan portfolio that is full of delinquencies and foreclosures,’ continues Giebel. ‘We're the poster child for underwater.’ Helping distressed homeowners during this crisis has been a primary goal for many HFAs, sometimes to the point of disrupting their origination efforts in order to attend to servicing needs. ‘In the past two years, our focus was primarily on foreclosure prevention and emergency mortgage assistance,’ says Carol DeRosa, administrator of the residential mortgage program at the Connecticut Housing Finance Agency. ‘We need to refocus on our core business: helping first-time home buyers.’ Yet the HFAs realize that their current work on behalf of homeowners has a wider resonance. ‘We've taken a broader look at our mission,’ says Cindy Flaherty, director of homeownership for the Ohio Housing Finance Agency (OHFA). ‘In addition to helping first-time home buyers, we are playing an important role in the housing market's recovery. We try to be as relevant to the market as possible, but that has been challenging since last year, when the bond market was not in our favor.’ [i][b]Broken bonds[/b][/i] Indeed, the bond market – or, more recently, the lack of one – has been problematic for the HFAs that rely on the sale of mortgage revenue bonds to finance their operations. Giebel notes that CalHFA saw the origination side of its endeavors slow to a near halt when the bond market chilled. ‘We have not had much activity because of the bond market,’ he says. ‘The spread is not large enough to pass on to first-time home buyers and give them a low interest rate.’ Over in Wisconsin, the state's HFA faced the same dilemma. ‘We made the decision in October 2008 to temporarily suspend the single-family mortgage program,’ explains Antonio Riley, executive director of the Wisconsin Housing and Economic Development Authority (WHEDA). ‘When the recession hit and the financial markets fell apart, that forced us to stop doing lending. It was difficult for us to sell bonds at affordable rates.’ Yet the absence of a lucrative bond market has not been a universal problem. ‘The key thing we did in the last one-and-a-half years was keep our program open,’ reports Eric Chatman, chief financial officer and deputy director of the Iowa Finance Authority. ‘We are a mortgage-backed security (MBS) state – we pool mortgages into MBS and offer them to the market. Last year, when the bond market was not operating, this was the one program to keep us at capacity.’ In response to the HFA's problems with the lack of bond-market viability, the Obama administration's October 2009 initiative included a pair of stopgap efforts to bring more funding to these entities. The first effort, the New Issue Bond Program, directs the Treasury Department to purchase Fannie Mae and Freddie Mac securities backed by new HFA mortgage revenue bonds. The program is designed to support financing new mortgages to first-time home buyers this year, as well as refinancing opportunities and the development of new rental housing units. However, this doesn't mean that the federal government becomes the sole customer for HFA bonds. ‘Fannie and Freddie will purchase 60 percent of the bonds that an agency received approval to distribute,’ explains Eric Pike, director of the first-time home-buyer program at the Texas Department of Housing and Community Affairs. ‘They've agreed to purchase these bonds at very attractive rates. However, we must go out and sell the other 40 percent on the open market.’ [i][b]Generating sales[/b][/i] The second effort, the Temporary Credit and Liquidity Program, directs Fannie Mae and Freddie Mac to provide replacement credit and liquidity facilities to HFAs to help reduce their ongoing financial strains. The Treasury Department will backstop the government-sponsored enterprise (GSE) replacement credit and liquidity facilities for the HFAs by purchasing an interest in them via the authority given to the department through the Housing and Economic Recovery Act of 2008. In both programs, the HFAs pay an access fee to participate. Separately, Fannie Mae has stepped in to work with the HFAs via its Affordable Advantage program, which was designed with the input of the National Council of State Housing Agencies, the trade association for the HFAs. The program, aimed at encouraging home loans for low- and moderate-income borrowers, was first embraced by WHEDA, which used the program as the vehicle for returning to the market after an 18-month absence. ‘We've been back online since March 1, and the response has just been tremendous,’ says Riley. ‘Since March 1, we have almost $8 million in loans in the pipelines, and we started closing loans after the first three weeks.’ While the HFAs have been grateful for the federal assistance, there are some areas that need more attention. Sarah Carpenter, executive director of the Vermont Housing Finance Agency (VHFA), has expressed interest in working further with the Department of Agriculture's Rural Development program, but there is a concern that the popular program may be exhausting its capacity. Carpenter also notes that restrictive GSE guidelines have made it very difficult for the VHFA to assist two significant housing sectors within the Green Mountain State. ‘Our only source of capital is through the Treasury program, in conjunction with Fannie and Freddie,’ she says. ‘We are governed by their policies, but those have tightened up significantly on condos. Also, we have a high percentage of homeowners with mobile homes, but neither GSE will purchase the loans. And we can't find mortgage insurance for them, so that business came to a screeching halt.’ Furthermore, Carpenter rues the lack of a healthy market for private mortgage insurance. ‘One of our biggest issues is the availability of mortgage insurance for first-time home buyers,’ she says. ‘We relied heavily on private mortgage insurance, but they're taking huge hits across the country. We need help for the first-timers – refinancing will not move real estate.’ [i][b]Scratch a niche[/b][/i] One key strategy for many HFAs is to focus on harvesting niche markets as a means of expanding its origination programs. OHFA, for example, has tried to keep new college graduates from leaving the state with its Grants for Grads program, which provides down-payment and closing-cost assistance, plus favorable mortgage interest rates through participating lenders to first-time home buyers who earned a degree – anything from an associate's degree to a doctorate – within the last 18 months. The agency also promotes its Ohio Heroes program, which provides a 0.25% lower interest rate to first-time home buyers who are in the military or who work in the emergency services and law enforcement fields, healthcare or education. ‘This gives our partners a marketing edge,’ says Flaherty. ‘We always try to reach new markets and get people aware of OHFA.’ Raising awareness has also been a key concern of the Nevada Housing Division, which, in February, rolled out its first-ever month-long newspaper and radio advertising campaign designed to encourage residential mortgage origination. ‘We normally run ads for a couple of weeks, but this is the first time that we are covering the entire state for a full month,’ says Jean Robinson-Norton, public information officer. ‘We had tremendous response in regard to the public being aware of the program. Not everyone knows we're here, even though we keep trying to promote the program.’ In other states, the HFAs are creating new programs to revive stagnant housing markets. The Michigan State Housing Development Authority has taken a double-pronged attack regarding the parallel problems of encouraging first-time home buyers while addressing the growing level of foreclosed and abandoned properties in the state's depressed markets. ‘We are providing assistance and incentives for first-time home buyers to purchase vacant properties,’ says Mary Townley, director of homeownership. ‘We are also offering a larger amount of down-payment assistance, including help to finance repairs. We've seen a lot of foreclosed and abandoned structures that remain vacant due to a lack of repairs, and many first-time home buyers do not have extra assets to pay for repairs.’ For Townley, the mix of home buying and homeownership cannot be easily subdivided. ‘We are not 100 percent about getting people into homes,’ she says. ‘We're also about keeping them in homes. The two must go hand in hand.’ At the New Mexico Mortgage Finance Authority, the agency has added an environmental hue to its origination endeavors through the Green Initiative, which encourages green building, energy retrofits and energy-efficiency practices to all of its residential loan programs. According to Erik Nore, director of homeownership, this green focus is designed to create savings that are both ecological and economical. ‘Everything we do incorporates green standards that make homes energy-efficient,’ he says. ‘This is done to protect consumers and retain scarce resources.’ At the North Carolina Housing Finance Agency (NCHFA), industry-oriented training is a key element in maintaining its local markets. ‘A lot of our partner lenders and Realtors have made inquiries, so we offer continuing-education classes,’ says Sharon Drewyor, director of homeownership lending, adding that the agency has placed a strong focus on providing updates on federal loan programs. ‘We've completed five classes this month, and the number of classes is based on how many people we fit into a room.’ Drewyor also notes that NCHFA is providing continuing-education reverse mortgages, with eight training sessions planned for this year to update housing counselors that will focus on this niche product. She adds that the agency will push forward to encourage the continuation of all aspects of the residential loan market. ‘There is still a demand for first-time home buyers,’ she
