Tuesday, October 20, 2009

Treasury Dept. Unveils Program To Fund Mortgages

The Treasury Department recently unveiled new plans to help more first time homebuyers get approved for mortgage loans. They are hoping to begin selling HFA bonds to the federal government in order to fund additional loans for struggling homebuyers. I’ve included a clip of an article from NPR.org explaining the Treasury Department’s new announcement, but you can read the full article here.

In a normal year, the so-called HFAs, or housing finance agencies, finance about $15 billion worth of mortgages, but the credit crisis has made it difficult for them to raise money for the loans.

Basically, the HFAs work like an affordable housing bank, says Steven Spears, acting executive director of the California Housing Finance Agency.

He explains that the agencies issue tax-exempt bonds to Wall Street and then the HFAs use the money to make loans. But investors have become reluctant to put their money into anything related to mortgages, especially in parts of the country, such as California, where home prices have fallen significantly since the market peak in 2006.

"They were just not interested," Spears said, explaining that his agency has been out of lending capital for a year now.

"Two years ago we had record lending, he said. "We had $1.7 billion in mortgages for first-time homebuyers. We're not making any loans at all really right now."

Treasury's plan is for the federal government to buy the bonds from HFAs, who will in turn have the money to lend to first-time homebuyers such as Natasha Henry, who is looking to buy a foreclosure in Boston's Dorchester neighborhood.

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