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A House America Bond for State Housing Finance Agencies

A House America Bond for State Housing Finance Agencies

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Jordan Eizenga introduces House American Bonds as an example of how to resolve funding issues for the housing finance agencies that support affordable housing.
Jordan Eizenga introduces House American Bonds as an example of how to resolve funding issues for the housing finance agencies that support affordable housing.

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Published by: Center for American Progress on Feb 27, 2012
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1Center or American Progress | A House America Bond or State Housing Finance Agencies
A House America Bond for StateHousing Finance Agencies
More Affordable Housing for Low- and Moderate-Income Households
By Jordan Eizenga March 1, 2012
Introduction
Sae housing nance agencies play an imporan role in he provision o aordablehousing. As sae-charered insiuions, hese agencies emerged in he 1960s in responseo he ailure o privae lenders and developers o nance aordable low- and moderae-income housing.
1
Wih a deailed undersanding o he needs o local housing markes,housing nance agencies are uniquely posiioned o responsibly underwrie morgages—oen wih down paymen assisance—or low-income, rs-ime homebuyers and onance he developmen o muliamily aordable renal housing.Since heir creaion housing nance agencies have nanced he consrucion o nearly 1million aordable renal unis and approximaely 4 million aordable morgages or low-and moderae-income households.
2
Ye over he pas several years, many o hem havesruggled o raise unds rom heir radiional source o capial—he ax-exemp bondmarke—a aordable raes and long mauriies o nance heir morgage programs. Tishas made i more dicul or hem o provide aordable morgages or low- and moder-ae-income households where he lack o morgage credi is greaes. As his issue brie demonsraes, hese unding challenges mus be resolved i housingnance agencies are o coninue o play an eecive and cenral role in supporing heirsae and local housing markes. In paricular, his brie argues or a promising new sourceo nancing or housing nance agencies—wha he Cener or American Progress wouldlike o call he “House America bond,” modeled aer he successul Build America Bondprogram ha was par o he American Recovery and Reinvesmen Ac o 2009. A House America bond—a direc-subsidy bond where a porion o he housing nanceagencies’ ineres coss are subsidized by he ederal governmen—would expand hemarke or hese bonds and lower borrowing coss or sae housing nance agency issuers
 
2Center or American Progress | A House America Bond or State Housing Finance Agencies
ha can be passed on in he orm o lower rae morgages. Mos imporanly, i wouldalso expand access o aordable renal housing and homeownership or many o hosehardes hi by he housing crisis.Tis issue brie will ouline why sae housing nance agencies are imporan o aord-able housing. We ocus on sae housing nance agencies, bu ha does no mean halocal housing nance agencies play an umimporan role in he provision o aordablehousing or are undeserving o addiional assisance going orward. Here, hough, welook a he unding challenges hey ace oday, and he impac o hese challenges, andhen describes he meris o a House America bond.
Why housing finance agencies matter to affordable housing
Sae housing nance agencies are an eecive and cenral player in he provision o aordable housing or wo reasons. Firs, hey have a good undersanding o local realesae markes and are uniquely posiioned o serve segmens overlooked by main-sream privae lenders. Tis is paricularly imporan oday, as morgage credi hasconraced 13 percen in real erms (aer accouning or infaion) since 2007 andunderwriing sandards have ighened o such an exen ha many crediworhy bor-rowers are unable o access morgage loans.
3
Mos sae housing nance agencies also oer morgage loans saewide and reach morecommuniies han convenional lenders. Tis is criical in rural communiies whereaccess o aordable morgage loans is much harder o come by.
4
As a resul, sae hous-ing nance agencies are able o underwrie aordable and sae morgages, oen coupled wih down paymen assisance, or borrowers and communiies ha would no usu-ally be served by convenional lenders. Down paymen assisance is a criical acor inmaking i possible or rs-ime homebuyers o buy homes wih aordable morgages,paricularly since he onse o he oreclosure crisis. Sae housing nance agencies alsoconnec homeowners o counseling services or low- and moderae-income rs-imehomebuyers as par o heir eligibiliy requiremens.Second, he ederal governmen has gradually wihdrawn rom aordable housingpolicy over he pas several decades, which has led sae housing nance agencies o akeon a bigger role. While ederal spending on low-income housing has increased sincehe 1970s, mos o his money has gone o renewing subsidies or exising unis raherhan oward he producion o new aordable housing unis.
5
Troughou his ime hedemand or aordable housing has grown. Indeed, he percenage o reners who areren-burdened has doubled over he pas 50 years.
6
Te end resul is ha saes have had o ake on a greaer share o responsibiliy in aord-able housing policy. Tis helps explain why oal spending on housing by all 50 saes
 
3Center or American Progress | A House America Bond or State Housing Finance Agencies
has been rending upward.
7
Te lion’s share o his increased role in aordable housinghas allen o sae housing nance agencies.
8
Tese agencies are relied upon no only as an aordable-housing capial provider bualso as an adminisraor o ederal subsidy programs such as he low-income housingax credi.
9
Trough 2004 sae housing nance agencies unded 2.4 million aordablemorgages or low- and moderae-income rs-ime homebuyers and 687,000 aordablerenal unis using ax-exemp bonds, as well as 1.7 million aordable renal unis usinglow-income housing ax credis, or LIHCs.
10
Meanwhile, a heir peak public housingunis subsidized by he ederal governmen clocked in a 1.4 million unis, while 1.8million very-low-income households were able o access renal housing using housingchoice vouchers.
11
In he wake o he oreclosure crisis, hese agencies have played an imporan role inoreclosure prevenion and neighborhood sabilizaion as well.
How state housing finance agencies fund their activities
o und heir aciviies, sae housing nance agencies have hisorically borrowedmoney in he ax-exemp bond marke by issuing morgage revenue bonds and mul-iamily housing bonds. Morgage revenue bonds are a unique ype o privae acivi bond issued by sae housing nance agencies o und aordable morgages or low- andmoderae-income rs-ime homebuyers.
12
Muliamily housing bonds are also sae housing nance agency-issued bonds and areused o nance he developmen o aparmens ha will be oered or ren a aordableraes o lower-income households.
13
Neiher morgage revenue bonds nor muliamily housing bonds are governmen guaraneed. Congress ses a volume cap on he numbero hese bonds ha can be issued annually.
14
Because he ineres income rom he bonds is exemp rom ederal income axes,individual invesors are willing o purchase he bonds a lower ineres raes. Tese lower borrowing coss allow sae housing nance agencies o use bond proceeds o makeloans or aordable housing a below-marke raes. Since heir incepion muliamily housing bonds have helped nance he creaion o nearly 1 million aordable renalunis, and morgage revenue bonds have unded low-cos morgages or approximaely 4million low-income amilies.
15
 A small number o sae housing nance agencies have adoped a model whereby hey securiize loans ino Fannie Mae, Freddie Mac, and Ginnie Mae morgage-backedsecuriies. Ginnie Mae is he ederal naional morgage associaion, and Fannie Mae andFreddie Mac are he wo morgage nance gians now in ederal conservaorship. Te

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