How housing finance agencies are incentivizing in the face of a weak bond market
The Obama administration again stepped in with a program to unfreeze this bond market, but that could end at the beginning of this year.
"Once that is over, the states probably still won't see a lively bond market," Thompson said pessimistically. "The municipal bond market in general has been hit hard and there is little activity for the housing sector."
This isn't to say that some SHFAs have not been successful. One of the most salubrious has been the Pennsylvania Housing Finance Agency (PHFA), run by Brian Hudson, its executive director and CEO.
"The bond market is not in the best of shape," Hudson said. "Investors want more yield. Anything that has the word housing attached to it means investors want to be paid handsomely. You can't offer an attractive mortgage rate when you're funding capital with higher yields."
To get around this impasse, PHFA became a direct Ginnie Mae seller/servicer.
"We use some of our own funds to warehouse mortgages until we can package them into a Ginnie Mae mortgage-backed security," Hudson said.
In the normally quiet winter months, Hudson said his agency was doing about $7 million a week in mortgages.
In the heart of the Great Recession, PHFA stayed active, doing about 4,000 loans with a value of $413 million in 2009, and 7,727 loans valued at $821 million in 2010.
How have those mortgages performed? In short, exceptional.
"Our foreclosure rate is around 1 percent," Hudson said.
The secret sauce in regard to PHFA's success is a combination of factors, including full underwriting, documented income and counseling. Also, since most homeowners can afford a mortgage but don't have the money for a down payment, PHFA provides $4,000 in what Hudson calls "closing cost assistance."
And Thompson noted, "SHFAs are spending a lot of time retooling and coming up with new lending executions that they, perhaps, have not used in the past."
Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis," is now available for sale on Amazon.com.
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