The Obama administration has announced an initiative to help state and local housing finance authorities (HFAs) maintain the viability of their lending programs during the economic downturn.

The plan has two components. A New Issue Bond Program will provide temporary financing to HFAs to issue new mortgage revenue bonds (MRBs).  Using authority under the Housing and Economic Recovery Act of 2008, the Treasury Department will purchase securities of Fannie Mae and Freddie Mac backed by these new MRBs. The program can support several hundred thousand new mortgages to first-time home buyers this coming year, as well as refinancing opportunities to put at-risk but responsible and performing borrowers into more sustainable mortgages, said officials. The new bond issuance is also expected to support development of tens of thousands of new rental housing units for working families.

 The second piece is the Temporary Credit and Liquidity Program for outstanding HFA variable-rate debt to strengthen HFA lending capacity. Fannie and Freddie will provide replacement credit and liquidity facilities available to HFAs that will help reduce the costs of maintaining existing financing for the HFAs. Treasury will backstop the government-sponsored enterprise (GSE) replacement credit and liquidity facilities for the HFAs by buying an interest in them.

The temporary programs come at a time when some HFAs have shut down their lending. So far this year, HFAs have sold only 91 single-family housing bond issues totaling $4 billion compared to 232 issues totaling $10 billion last year and 355 issues totaling $16 billion in 2007, according to the National Council of State Housing Agencies.

Despite being pressed by reporters during a media briefing, federal officials did not indicate how large the temporary programs might be. Instead, they repeated that the programs are being built from the ground up and the appropriate size still needs to be determined.

However, a deadline looms. All new bond issuance and Treasury purchases of related GSE securities must occur by Dec. 31. Replacement liquidity facilities must also be arranged through the GSEs by Dec. 31.