Tue Mar 27, 4:11 PM ET
A growing number of state housing agencies are developing or considering issuing bonds to assist subprime mortgage holders to refinance their obligations at fixed rates, officials at housing agencies said on Tuesday.
The Ohio Housing Finance Agency intends to launch a refinance program on April 2 to accept applications from lenders. That program would be funded by taxable bonds issued probably later that same month in an amount likely around $100 million, said Bob Connell, director of debt management for the agency.
The aim is to allow low- to moderate-income mortgage holders who have not entered the foreclosure process to refinance their mortgages at a fixed rate likely around 6.75 percent, Connell said.
A U.S. Treasury official said the tax code places limits on such issuances through a series of "volume cap" rules.
Other states are implementing, drafting or considering similar measures.
"Maryland has had a similar refinancing program for subprime mortgages for the last few months," said Garth Rieman, director of housing advocacy at the National Council of State Housing Agencies.
Officials at Maryland's Department of Housing and Community Development were not immediately available for comment.
In recent weeks, financial markets have been shaken by increasing delinquencies among subprime mortgages offered to borrowers with damaged credit. This has triggered concerns that the fallout may spread to mainstream lenders and damage the U.S. economy. For more on subprime mortgage markets, please see:
Rhode Island, Massachusetts and Virginia are now "running or developing similar programs and are further along than other states," Rieman added.
Colorado, California, Washington and Wisconsin, meanwhile, have been inquiring about the details of such refinancing programs, Rieman said.
Indiana, meanwhile, is about to open a hotline to help homeowners facing foreclosure and is offering referrals to advisors who are able to assist with loss mitigation, while the state legislature is considering a bill that includes a public awareness campaign.
"We are not currently offering such a (refinancing) program," Indiana Housing and Community Development Authority spokeswoman Amber Seidler said.
"Tax exempt bonds are, pursuant to the IRS (U.S. Internal Revenue Service) Code, limited to being used to fund new mortgages, not refinancings," she added.
"A couple of other states have set up pilot programs utilizing taxable bonds to target subprime borrowers, but they are very new and we have not reached that stage of having a program ready to offer," Seidler said.
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