Private Activity Bond Committee Notes: Oregon Awash with Unused Bond Cap, No Program Yet for Subprime Refinance Bonds.

I attended the Friday January 23rd. meeting of the Oregon Private Activity Bond Committee in Salem. A new Chair was introduced,Kate Cooper Richardson from the State Treasurer's Office. One of the three PAB members, Jack Kenny, was not in attendance.

The purpose of the meeting was to approve carryover allocations of unused 2008 bond cap, including the $117 million in special housing bond cap made in the summer '08 federal housing legislation.

A summary of some of the bond allocation numbers: OHCS didn't use any of the $120 million in 2008 PAB cap that had been allocated to them, nor any of the $117+ million in the special summer federal housing legislation cap. They requested that they receive $250 million, plus the $117 Million, and they also received $19 million that would have been lost, so their total carryforward allocation was $387 million. HAP's $25 million request, which was approved, was for a scaled down version of their downtown service center.

A table I prepared with a summary of these calculations is HERE.

Note also that Oregon has $341 million in private activity bond cap for 2009. Adding that to the $412 million in 2008 cap carried forward, my calculations are that in 2009 there will be at LEAST $753 million in private activity bond cap available for use.

During the OHCS discussion, several items from my notes:

OHCS 2008 single family loan volume was 1,598 loans, for $281 million.

In 2009 OHCS expects that volume to drop significantly to 800 loans, $132 million for the year. OHCS expects to have $100 million in PAB MF bonds.

The total of $232 million for 2009 is $155 million below the 2008 carryforward allocation already made to OHCS, without any additional allocation from the currently unallocated $340 million for 2009).

Following the OHCS staff discussion with the PAB, I made a short presentation to the PAB about the need for Oregon to adopt a sub prime refinancing program as permitted by the summer federal housing legislation. My presentation is HERE.

In particular, I attempted to provide information about the number of subprime ARM borrowers in Oregon (36,000); the potential savings to individual families, $5,870 using current bond rates; and the ability to use existing high volume refinance loan programs like FHA mortgage insurance in conjunction with an Oregon bond refinance program; [There were 738 loans/$159 million conventional loans that refinanced into FHA loans in November alone; this is close to the total ANNUAL 800 loan volume projected for the Oregon bond program for all of 2009].

As part of that presentation I recommended a set aside of $50 million for such a program.

(Angela Martin, from Our Oregon testified in support of Oregon adoption of a sub prime mortgage refinancing program and I very much appreciated her support).

Follow up testimony from OHCS was:

1. That they had a program ready to go,
2. That the existing allocation for Single Family from the PAB did not require any suballocation.
   
3. But since the current SF bonds were issued prior to the August adoption of the federal legislation, they could not use existing bonds for such a program,
4. OHCS would have to issue new bonds before such a program could be put into place.
5. A difficult marketplace made the timing of a new issue uncertain, and it seemed likely that rates in the new issue would be higher than the current bond rate of 4.5%.

My first response was that there had been noticeable recent improvements in the municipal bond market. (PAB staff said that this was true of the GO bond market, but not so in the mortgage revenue bond market). I also noted that a blog post I had just done that morning indicated that Chair Barney Frank's view was that TARP II funds could be used to purchase HFA mortgage revenue bonds.

Following the additional OHCS testimony, the PAB chose to not make such a suballocation for subprime refinance loans.

Although I have some misgivings about the potential for shenanigans in the FHA loan program, I am pleased that FHA is providing one way of reducing loan payments for subprime ARM borrowers, and an opportunity for families to stay in their homes at a lower monthly cost.

While I am happy to see FHA step up, it saddens me that the State of Oregon has not yet done likewise, by providing a loan product that would not cost the state anything, and could offer an even lower cost loan alternative for families with subprime ARM loans. February 1st will mark 6 months since the effective date of the legislation and there is yet no program in place.

One additional item from the meeting: Dates for the PAB meetings have been listed as April 15 (ironic,no?), July 15th, and October 15th.