Housing bonds continue to present an attractive option for yield enhancement in your municipal bond portfolio. With municipal issuers facing ongoing budgetary pressures, the federal backing of HFA bonds takes on even greater importance. Fannie Mae and Freddie Mac are “front and center” in this bailout program.
THE CURENT ADMINISTRATION’S PLAN
Investor confidence in HFA bonds was further buoyed by the Christmas Eve announcement by the Treasury Department announcing it will give Fannie Mae and Freddie Mac unlimited financial support for the next three years to keep them solvent, lifting the previous cap of $200 billion each through 2012.
WHY THE MOVE WAS NECESSARY
Unlimited access to bailout funds through 2012 was “necessary for preserving the continued strength and stability of the mortgage market,” the Treasury said, and basically nationalizes both Fannie and Freddie. The Administration views Fannie and Freddie as critical weapons necessary to get the housing market back on its feet.
This new development underscores the lengths that the federal government will go to keep the real estate system stable. What this means for investors is that there is no credit risk attached to their debt other than that attached to the U.S. Treasury itself.
MainLine understands the municipal housing bond market and has the expertise and contacts to support this type of investment. Investors with some flexibility regarding cash flows and average maturity dates and not subject to AMT should consider investing a portion of their municipal portfolio in this sector of the market.