Small firms, home buyers to get a boost
The Obama administration rolled out an initiative Monday to help moderate- and low-income home buyers, launching what sources familiar with the planning said will be a series of proposals aimed at healing two badly wounded areas of the economy: small business and the housing market.
In an effort to encourage homeownership, the Treasury Department announced an initiative to help ailing state and local housing finance agencies provide inexpensive mortgages to underserved borrowers.
Later this week, the administration plans to ask Congress to raise the ceiling on the amount of money companies can receive from the Small Business Administration's major lending programs, the sources said.
The Treasury is also close to finalizing a proposal to use bailout funds to help community banks lend to small businesses. But a high-level meeting Monday between Treasury and White House officials raised questions about the size and some terms of the program and may have delayed its unveiling, the sources said. The administration is also considering ways to help community-development financial institutions, which can offer credit to small businesses in low-income areas.
The efforts reflect the priorities of Obama's economic brain trust and its increasing preference for moderate-size initiatives over another large stimulus program that could be criticized as a package of runaway spending.
The sources spoke on the condition of anonymity because the discussions have been private and the details remain in flux.
Officials do not know how much the initiatives will cost, but none of the programs is expected match the size of the massive government bailouts that were issued during the heat of the financial crisis.
Indeed, Treasury officials would not even say how much money they would be committing to the housing program they announced Monday. In the weeks leading up to the announcement, the officials discussed investing as much as $35 billion, according to government sources.
Under the program, the Treasury, along with mortgage financiers Fannie Mae and Freddie Mac, will buy the bonds used by housing finance agencies to fund mortgages, which can carry an interest rate that is a percentage point lower than loans made by private lenders. Called HFAs, these agencies have been strapped during the financial crisis because investors have been unwilling to buy their debt. The federal government is now attempting to play the role of the investors.
Treasury Secretary Timothy F. Geithner said the program will help stabilize the housing market. The initiative will provide hundreds of thousands of affordable mortgages and enable HFAs to rehabilitate tens of thousands of affordable rental properties, a Treasury press release said.
"This initiative is critical to helping working families maintain access to affordable rental housing and homeownership in tough economic times," Geithner said in a statement. "The housing downturn has hit these organizations too. Through this initiative, the Administration aims to help HFAs jumpstart new lending to borrowers who might not otherwise be served."
Some economists cheered the efforts to aid the housing market, which they said is critical to the economic recovery.