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Reviving a Key Source of Mortgage Funding for Working Families

CEO Ed HaldemanWith mortgage interest rates near 50-year lows, a massive inventory of unsold homes on the market, and housing prices at very affordable levels in much of the country, you'd think this would be an ideal time for working families to buy homes. Yet the housing downturn has all but eliminated an important source of financing for lower-income, first-time homebuyers: mortgages provided by state and local housing finance agencies (HFAs).

HFAs have a strong record of providing safe, affordable, and sustainable homeownership opportunities. Typically, HFAs accomplish this by issuing tax-exempt mortgage revenue bonds that ultimately make homes less expensive for borrowers and rental housing less costly for developers. The approach works: over the years, state and local HFAs have helped finance 3 million new single-family homes and another 3 million rental units.

But HFAs have been hit particularly hard by the housing downturn. Consider the situation in Wisconsin. Before the recession, the Wisconsin Housing and Economic Development Authority was lending up to $10 million a week to first-time homebuyers. Last year, after the capital markets seized up, the agency was forced to suspend lending. HFAs across the country have found themselves similarly frozen out – unable to sell new mortgage bonds and provide their usual loan products.

The Obama Administration understands that getting HFA funds flowing again and bringing borrowers back into the market are critical steps to stabilizing the housing economy.  And it has called on Freddie Mac and Fannie Mae to play a central role in reviving this important lending sector.

Working with the Administration, the Federal Housing Finance Agency, and others, we've developed a two-part solution: securitization of new HFA bonds for sale to the U.S. Department of the Treasury, and a credit and liquidity program to attract investors for outstanding variable rate HFA bonds.

Everyone wins under the plan. More families gain access to affordable homes; HFAs benefit from Freddie Mac's housing finance expertise and securitization tools; the Administration deploys another resource to support the recovery of the housing market; and Freddie Mac generates new business at terms that are commercially reasonable for us.

As one HFA official in Minnesota said, "This announcement paves the way for housing finance agencies around the country to help thousands of homebuyers unlock the door to their first home." The HFA initiative provides a new and needed way to reinvigorate the nation's housing markets. And it demonstrates once more Freddie Mac's vital role in the nation's economic recovery.

* Ed Haldeman left his position at Freddie Mac in May 2012.


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