State housing finance agencies (HFAs) are calling on the Treasury Department to help bolster their lending programs during this economic crisis.

The National Council of State Housing Agencies (NCSHA) is urging Treasury leaders to create a market for state HFA tax-exempt housing bonds by purchasing them directly or through Fannie Mae and Freddie Mac.

“In strong and weak economies, HFAs have been a constant, reliable source of flexible, affordable mortgage money for lower-income, first-time home buyers and rental housing developments,” said NCSHA Executive Director Barbara Thompson in a March 13 letter to Treasury Secretary Timothy Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development.

HFAs have been unable to sell long-term housing bonds at interest rates that allow them to lend bond proceeds affordably. “As a result, all HFAs have severely curtailed and several have suspended their lending programs,” Thompson said.

As of March, 45 state HFAs reported that they could issue a total of $15 billion in housing bonds in 2009 and another $18 billion in 2010, according to NCSHA. Thompson said that any federally supported HFA bond purchase program must be wide enough in scope that all the states and territories can benefit.

NCSHA added that it is important for the Treasury to purchase or facilitate a purchase of the bonds at interest rates that allow the HFAs to lend the bond proceeds at below-market rates while covering their issuance costs. “We recommend an interest-rate advantage of at least 50 basis points below the conventional, 30-year fixed-rate mortgage rate, the relative advantage HFA housing bonds have achieved historically,” said Thompson. NCSHA pointed out that HFA loans have a history of strong performance and that the agencies have never defaulted on a housing bond.

The organization also said it is critical for the Treasury to help HFAs maintain their strong financial positions and lending capacity by helping them remarket their short-term variable-rate debt by backing it with strong liquidity facilities such as stand-by bond purchase agreements and letters of credit.

The HFAs have about $23 billion in variable-rate debt outstanding, with $1.5 billion expired or set to expire within the next three months and $1.3 billion more due to expire by the end of 2009.

Some state housing agencies are struggling to remarket their variable-rate debt because traditional buyers have dropped out. HFAs unable to find buyers for their variable-rate debt have had to convert it to “bank bond” status, requiring them to pay it off under accelerated amortization schedules at high interest rates, according to the letter. Twelve HFAs hold $3 billion in bank bonds.

NCSHA concluded by saying that another way that the Treasury can help is to facilitate the purchase of HFA loans by Fannie Mae and Freddie Mac.