New York’s largest housing finance agencies plan to sell more than $1 billion of bonds to Freddie Mac and Fannie Mae this month under a new federal program aimed at giving a shot in the arm to HFAs.

With the new-issue bond  program (NIBP), announced in October, HFAs (Housing Finance Agency) across the country can sell an aggregate of $18.6 billion of bonds that will get some support from the U.S. Treasury.

“It’s just amazing that we’ve been able to move through a very complicated program in a very short period of time,” said John Murphy, executive director of the National Association of Local Housing Finance Agencies. “It’s a much needed program and we’re doing our best to see that there is broad participation.”

The program is intended to jump start the market for housing bonds that fell apart after the housing bubble burst and the country entered recession. Issuers have sold $8.76 billion of housing bonds in 2009 so far, compared to $17.84 billion last year and $30.66 billion in 2007, according to Thomson Reuters.

The biggest drop was in single-family housing bond issuance, which has fallen to $5.37 billion this year compared to $12.59 billion last year and $25.1 billion in 2007.

The wrinkle in the program is that the bonds have to be sold by the end of the year so many HFAs, such as the New York agencies, are planning to sell bonds as taxable debt by then and put the proceeds in escrow until they are ready to use the funds and can convert the debt by issuing tax-exempt bonds. After purchasing the bonds, Freddie and Fannie in turn sell the bonds to the Treasury.

One issuer in the Northeast sold a mix of tax-exempt bonds and escrow bonds under the program. Last month, the Rhode Island Housing and Mortgage Finance Corp. sold $30 million of tax-exempt bonds to public investors to finance mortgages and home repair loans for low and moderate income families, as well as to buy mortgages from participating ­lenders.

At the same time, the agency is placing $45 million of tax-exempt term bonds with Fannie and Freddie and also selling them $83 million of taxable variable-rate bonds that will be put into escrow. The issuer increased the escrow amount from $57 million by transferring an allocation for multifamily homes to single-family homes. The deal will close on Dec. 23.

New York City Housing Development Corp. (HDC) plans to sell about $500 million of bonds under the program on its open resolution for multifamily housing. The bonds will be sold as a subordinate pledge to segregate the NIBP bonds from the issuer’s other bonds. The HDC will use the bond proceeds to finance multifamily affordable housing projects.

The State of New York Mortgage Agency plans to sell $389.1 million of bonds for single-family mortgages for first time home buyers and the New York State Housing Finance Agency plans to sell $276.1 million for multifamily affordable housing.

The escrow bonds will bear a variable rate equal to 28-day Treasurys. The issuers will invest the escrowed proceeds in short-term Treasuries, which is expected to create minimal, if any, negative arbitrage.

When issuers need to use the funds to purchase mortgages, the agencies will refinance the bonds and convert them to long-term, tax-exempt bonds. Escrowed bonds can be released three times. They have until the end of 2010 to refinance the bonds.

The rate structure under the program will lower borrowing cost by 1 percentage point compared to selling them on the open market, according to an HFA estimate.

“The program bonds will be converted to tax-exempt bonds and to another interest rate mode in most likely a fixed-rate mode maturity on three separate occasions during 2010 as mortgage loans are ready to close,” said Richard Froehlich, HDC executive vice president for capital markets and general counsel.

“Upon each of these conversions, a portion of the bonds will bear interest at a fixed rate equal to the 10-year constant maturity Treasury rate on a date to be determined plus 75 basis points.”
The corporation could also choose to have a portion of the converted bonds bear a short-term variable rate for construction loans for 48 months that would then be converted to a fixed rate equal to the 10-year Treasury rate plus 155 basis points, Froehlich said.

When the single-family bonds are converted, the program requires that 40% have to be offered to public buyers and 60% must be issued to the government-sponsored enterprises, Freddie and ­Fannie.

There is no such requirement for the multifamily bonds to be refinanced with a public offering. Nonetheless, Froehlich said they expect to offer some of the converted bonds to the public, though a decision hasn’t been made.

“We’ll figure out what we’re going to do,” he said. “Right now there’s so much pressure to get these issued.”

There’s no lack of projects that can use the proceeds. The HDC has more than $2 billion of projects in its pipeline and the HFA has approximately $900 million in its pipeline.

So far this year, the HDC has sold $951 million of bonds and State of New York Mortgage Agency (SONYMA) and HFA have sold a combined $1.38 billion, according to Thomson Reuters.

The HFA and SONYMA deals are among the last to be worked on under Priscilla Almodovar, who has been the issuers’ president and chief executive officer for nearly three years. She resigned last week to pursue work in the private sector, HFA spokesman Philip Lentz said.

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