A commentator by the name of Larry Doyle asked yesterday:

With the recent news that the FHA insurance fund is depleted, now the FHA decides to tighten standards. Spend money first, ask questions later? Where and when will this madness end?

The madness clearly won’t be ending anytime soon.  The Wall Street Journal [In itty-bitty type, no less.] discusses yet another bailout courtesy the Treasury and by extension, the U.S. taxpayer:

NEW YORK (Dow Jones)–First-time home buyers will have even more of an incentive to get into the real estate market next year as a little-noticed Treasury program is preparing to put up billions of dollars to subsidize mortgages.

State and local housing finance agencies are slated to receive $18.6 billion in matching funds from the Treasury by the end of 2009–$3 in aid for every $2 the local agencies raise themselves by selling bonds to the public. That could make more than $30 billion in cheap loans available to first-time buyers, far more than the 2007 peak of $18 billion, according to the National Council of State Housing Agencies.

"It allows us to be more competitive in the market, making it more affordable for first-time home buyers," said Trent Ridley, finance chief of the Tennessee Housing Development Agency. "We’ll be able to help more folks."

Pennsylvania’s Housing Finance Authority sold the first $150 million of bonds under the new program Tuesday.

Being able to offer that volume of financing to new homebuyers would be a dramatic turnabout from 2009, when agency lending fell to $4.5 billion amid a host of financial difficulties, including tight credit markets, low rates from traditional lenders and a weak housing market in general.

Some state housing finance agencies were forced to drastically cut lending, sawing away at government support of an already weak housing market.

Under the program, the HFAs sell bonds to federally controlled mortgage agencies Fannie Mae (FNM) and Freddie Mac (FRE), which sell securities backed by the bonds to the Treasury. The interest rate on the HFAs’ bonds, according to Ridley, is the 10-year Treasury yield plus a premium based on the credit rating of the housing agency that sold the initial bonds.

Ridley said that Tennessee, with a Aa2 rating from Moody’s Investors Service, will pay a premium of 75 basis-points on top of the recent 10-year yield of 3.21% for a grand total of 3.96%. As a result, the agency will be able to offer mortgages with a rate of 4.9%, compared with its current rate of 5%. [We're supposed to pay billions so first-time buyers can save 0.1% on their mortgage? What a deal!]

The bonds sold to private investors are priced at whatever rate the market will bear, but the Treasury’s plan allows agencies to limit the retail portion of their debt to more palatable, short-term maturities.

The Treasury’s program has a deadline of Dec. 31, 2009, tied to its authorization under the 2008 Housing and Economic Recovery Act. However, it’s structure allows the agencies to delay the $12 billion dollars they would need to sell to investors until next year. The agencies will sell all $18.6 billion in bonds to Fannie Mae and Freddie Mac, and then keep the portions that are unmatched by investor sales in an escrow account.

Agencies representatives say the plan is vital to their ability to continue to support their low to moderate income first-time buyers.

"We didn’t have anyone purchasing the bonds at a competitive rate so now the U.S. Treasury has agreed to purchase them," said Patricia Braynon, director of the housing finance agency for Florida’s Miami Dade County. "It will generate an artificial market."

"Generate" an artificial market?  "Keep the artificial market going" would be a better choice of words.