U.S. plans announcement of state housing agency aid

WASHINGTON, Sept 28 Mon Sep 28, 2009 3:57pm EDT

WASHINGTON, Sept 28 (Reuters) - The Obama administration is expected to announce a program this week to aid low- and moderate-income U.S. housing markets by funding state housing agencies, officials said.

The Wall Street Journal reported that the program would total $35 billion, with government-controlled housing finance giants Fannie Mae and Freddie Mac buying up to $20 billion in bonds issued by the state housing agencies. Another $15 billion in funding would come from the Treasury under authorities granted under housing rescue legislation passed in July 2008.

The funds would answer months of request by the state housing agencies for funding that would let them resume writing and guaranteeing low-interest mortgages for first-time and low-income home buyers.

The state housing agencies issue debt to fund the mortgages, but for many months, they have been shut out of a largely frozen municipal financing market, while traditional buyers of their bonds -- Fannie and Freddie -- have been unable to purchase them as their own finances have been stretched.

White House spokesman Robert Gibbs, asked about the new mortgage funding program, said there would be an announcement about it by the Treasury later this week.

A Treasury spokeswoman confirmed that the Treasury was discussing a program to help state housing finance agencies, but said details were still being worked out. She declined to confirm the $35 billion figure.

The Journal, citing Obama administration officials, said Fannie and Freddie would purchase $20 billion of new, fixed-rate bonds, issued by the housing agencies, securitize them and sell them to the Treasury.

A second effort would set aside $15 billion to fund variable-rate demand obligations, a type of low-cost debt issued by the agencies to investors, the Journal said. (Reporting by David Lawder; Editing by Jan Paschal)