Treasury, GSEs in New Effort to Boost HFA Bonds

Under a new plan unveiled Monday afternoon the Treasury Department — as well as Fannie Mae and Freddie Mac — will attempt to boost the struggling mortgage revenue bond market, which is currently operating at about 25% of capacity. Year-to-date, state and local housing finance agencies have issued just $4 billion in mortgage revenue bonds (MRBs), the proceeds of which are used to provide low-cost residential loans and build or renovate rental housing. As part of the plan to increase liquidity, the Treasury will purchase Fannie Mae and Freddie Mac securities which will be backed by new MRBs. The GSEs also will provide partial credit enhancements which will serve as a guarantee of sort on the bonds. Government officials declined to give an estimate on how much authority might be used under the program but did say there would be a ceiling to it. Some HFAs have completely shut down their lending programs because of a lack of liquidity caused by the housing crisis.