Government unveils new mortgage help

updated 4:18 p.m. ET Oct. 19, 2009

WASHINGTON - The Obama administration on Monday unveiled a new program to support state and local housing finance agencies. The plan will help the agencies finance mortgages for first-time homebuyers and develop rental housing.

The agencies have had a hard time raising money because of the housing crisis and credit crunch. This year, the agencies have sold about $4 billion in tax-exempt bonds — one-fourth the amount in a typical year. That reduction is limiting the number of loans they can make.

The new program uses mortgage finance companies Fannie Mae and Freddie Mac to help fix the financing crunch. The two companies will package mortgages made by the housing agencies and sell them as bonds to the Treasury Department.

"It's an additional layer of assistance to borrowers who are seeking a mortgage at a time when credit is scarce," said Howard Glaser, a mortgage industry consultant in Washington. "It doesn't solve all the problems of the housing market, but every little bit helps."

Officials declined to place a dollar value on the size of the bond program, saying it will be based on demand.

Fannie and Freddie also will help to provide short-term financing for the housing finance agencies, with backing from the Treasury. State and local finance housing finance agencies have pressed for federal help for months.

Treasury Department officials said any losses from loan defaults will be entirely covered by fees paid by the state agencies.

"The expected cost to the federal government is zero," said Michael Barr, an assistant treasury secretary.

The agencies play a relatively small role in the mortgage market, aiding about 100,000 to 200,000 first-time borrowers a year.

Also in msnbc.com business Companies scale back, cancel holiday parties Answer Desk: Overpaid and bailed-out at banks? Your Career: ADA expands to cover more workers Venza sorta-crossover is Toyota’s latest mistake   Video: Green motorcycles are born to be mild

MORE FROM REAL ESTATE

Real estate Section Front

Housing starts drop 10.6 percent in October Beazer Homes CEO could face civil charges Pace of mortgage help rising but still slow Survey shows spike in 1st-time homebuyers Craftsmanship sparks home renovation fad Foreclosure filings dip for third straight month Rates on 30-year loans still below 5 percent Housing agency's financial cushion sinks Only 5 percent plan to buy a home next year Housing plan reaches 1 in 5 borrowers Real estate Section Front   Add Real estate headlines to your news reader: