Mortgage Assistance for States

The Obama administration's latest effort to support the housing industry was unveiled in Washington today. The new program is designed to help state agencies in financing mortgages for first-time homebuyers, as well as develop rental housing. To accomplish this task, Fannie Mae and Freddie Mac will package mortgages and sell them to the Treasury Department as bonds. In other words, the Treasury will back Fannie Mae and Freddie Mac as they provide short-term financing for these state housing agencies.

At a time when credit is scarce, this program will provide borrowers with additional support. According to Michael Barr, an assistant Treasury Secretary, "the expected cost to the federal government is zero." Any losses from the default of these mortgage loans will be incurred by the state agencies. With current mortgage rates still below 5% and the $8,000 first-time homebuyer tax credit set to expire, the timing of this program is critical.

-Robert Hyder