HFAs Face Troubled Housing Market

AFFORDABLE HOUSING FINANCE • June 2008

BY DONNA KIMURA

Welcome to the state housing finance agency (HFA) world. Foreclosures are rising. Affordable housing deals are struggling under the strain of widening funding gaps. And the capital markets are a mess.

It’s no longer business as usual for HFAs, which are expected to help get affordable housing builders and others through the worst housing slump in two decades.

“Our short-term priorities have been changed dramatically by the turmoil in the housing market,” said Susan Dewey, executive director of the Virginia Housing Development Authority (VHDA). As a result, her agency has turned its focus to three key areas: raising capital to support loans to affordable housing developers, modifying its home-purchase lending programs to balance the supply of and demand for funds and to manage risks; and addressing the state’s foreclosure problem.

Dewey and other HFA executives discuss how they are responding to the foreclosure crisis, the decline in low-income housing tax credit (LIHTC) prices, and other key challenges in this issue of AFFORDABLE HOUSING FINANCE.

Nationally, foreclosure activity jumped 5 percent in March from the previous month and 57 percent from March 2007, according to RealtyTrac, which maintains a national database of foreclosure properties. Its latest report shows that one in every 538 U.S. households received a foreclosure filing in March.

Doug Garver, executive director of the Ohio Housing Finance Agency (OHFA), cited the ballooning number of foreclosures as his top concern. In March, Ohio ranked No. 7 in foreclosures, with one in 448 households in the state receiving a foreclosure filing, according to RealtyTrac.

The troubles go far beyond those in jeopardy of losing their homes. Garver sees the wider effects of tightening mortgage credit and sinking home values.

To help, OHFA has increased counseling efforts and offered a loan program for families that need to refinance their mortgages.

Other HFAs have also had to make the foreclosure crisis a priority.

“Colorado has had the dubious honor of being ranked high on the lists of foreclosure rates, including holding first place for part of 2007,” said Milroy Alexander, executive director and CEO of the Colorado Housing and Finance Authority (CHFA). “While our ranking has dropped, we still have many thousands of households that have either gone into foreclosure or are facing it in the near future.”

In response, CHFA has also developed loan products that allow borrowers to refinance existing mortgages into safer loans with lower payments. It has also been involved in a foreclosure hotline to provide callers with information.

In Missouri, the news is just as bad. The state reported 3,469 foreclosure filings in February, a 47 percent increase from the year before, said Pete Ramsel, executive director of the Missouri Housing Development Commission (MHDC), citing RealtyTrac figures.“This number will likely increase as more adjustable-rate mortgages (ARMs) reset in the near future,” he said. At a recent planning session, MHDC staff presented three new programs to help with the needs of first-time homebuyers and families threatened with foreclosure.

Florida is also near the top of the list in foreclosure activity and mortgage fraud. The Florida Housing Finance Corp. is working to increase the counseling capacity of existing nonprofit groups in the state to provide foreclosure mitigation assistance to borrowers in trouble, according to Steve Auger, executive director of Florida Housing.

Thirty-two state HFAs recently received a grant from NeighborWorks America to provide foreclosure counseling.

Foreseeing recovery

Although several recent forecasts predict that the housing market will begin to recover this year, several HFA leaders said a comeback will take longer.

“Based on the market news I have been reading and getting on a daily basis, I believe recovery is beyond this year,” said CHFA’s Alexander in April. “We are still concerned that a large amount of ARMs are yet to convert, and that even with the interest rate actions by the Federal Reserve Bank, various stimulus, regulatory, and other changes, the full chain effect of the credit crisis is yet to be felt at least in some parts of the economy.”

The subprime mortgage crisis has caused a lack of liquidity in the market, putting increased pressure on the agency’s limited resources, including tax-exempt bonds and LIHTCs, he said.

Garver agrees that it is going to be a while. “The recovery of the markets is likely a year or more in the coming,” he said. “Many of the housing issues have to settle out in the market before full confidence can be restored.”

Other HFA leaders are a little more optimistic and believe improvement will begin in 2008. Recovery is going to depend on how quickly the home purchase market can stabilize and the ability to avoid a deep and lengthy recession, Dewey said. She’s hopeful that conditions will begin to turn around later this year.