BLOG VIEW: State Bonds For An Embattled Housing Market?

Written by Phil Hall
on March 02, 2009 No Comments
Categories : Blog View

One of the main concerns regarding government intervention in the current housing crisis is the question of financing the various bailout/rescue efforts. Considering the federal government has been operating in the red throughout this decade and the state governments follow their own brand of deficit spending, it would seem there is no legitimate source of funding for these new housing-relating endeavors. Â

An interesting financing idea recently popped up in Ohio. It didn't work due to situations unique to one of the organizations involved in the plan, but I don't see why it cannot be adapted properly in other areas and with other entities. Â

The situation involved the Summit County Port Authority, an economic development agency serving northeast Ohio. According to an article in the Akron Beacon Journal, a group called American Homeowner Preservation (AHP) of Cincinnati wanted the port authority to issue $12.5 million in tax-exempt bonds for a foreclosure prevention program. Â

Under this plan, AHP would use the funds from the bonds to buy homes facing foreclosure at reduced rates from the mortgage companies. AHP would then lease the properties back to the homeowners, who would pay rent and have the option to buy back the properties after three years. Â

The problem, it turned out, was not the plan, but its key player. AHP was called to task by the port authority for its involvement with Jorge P. Newbery, the group's key financial backer. The Beacon Journal article states that the Indianapolis Housing Police were pursuing fraud charges against Newbery, the man who provided the financial backing for the nonprofit – the exact quote was that Newbery had ‘engaged in a blatant, systematic, nationwide, ongoing criminal conspiracy.’ Â

While the port authority leadership nixed an AHP partnership, it did add that it was open to the idea of pursuing a similar program with another group, preferably a local organization without the residue of scandal. To date, no other group has stepped forward to take AHP's place. Â

This is not the first time Ohio has explored bond issuances to fight the foreclosure crisis. Two years ago, the Ohio Housing Finance Agency issued $100 million in taxable municipal bonds help 1,000 homeowners refinance their mortgages. I am surprised more states aren't considering bond issues as a means to help stabilize their local housing markets. With the proper entities involved in the process, there is no reason why these bond issues could not serve as a win-win situation. Â

If anything, the bond approach is somewhat more imaginative and dignified than waiting for slices of the federal stimulus package to come trickling in. Granted, the bond markets – not unlike the rest of the country – are a mess, and there is no guarantee that investors will consider such bonds as satisfactory vehicles. Â

Nonetheless, it is an idea that should be discussed and planned correctly. With the right entities and vigorous due diligence, it could easily become a win-win situation.

– Phil Hall, editor, Secondary Marketing Executive.

(Please address all comments regarding this opinion column to hallp@sme-online.com.)

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