The state housing authority that one developer called the backbone for development and economic activity in Michigan is another victim of the collapse of the housing market.
The Michigan State Housing Development Authority's financial reports show it is in danger of losing money for the first time since the mid-1960s when it was created.
Amid declining revenues and increased delinquent payments on loans it has issued to support development of affordable housing, MSHDA's finances are on shaky grounds, says one expert.
James Hohman, a fiscal policy analyst with the Mackinac Center for Public Policy, said there are similarities between MSHDA's financial condition and that of Fannie Mae, the stockholder-owned corporation that helped lend money to homebuyers and which was placed in conservatorship by the federal government in 2008.
"Further downturns in Michigan's already troubled housing market could mean that Michigan gets its own Fannie Mae," Hohman said. "... MSHDA is in unprecedented times. The scenario you have to be careful of is MSHDA not having money to pay its bonds. The state should not be in the housing market. If this continues, Lansing might call on taxpayers to support it."
MSHDA's own fiscal crisis could be a serious blow to Michigan's already ailing economy, since MSHDA has $2.3 billion in bonds that it is paying interest on to support development.
"I believe they are incredibly important to the overall health of the development in the state of Michigan," said Bob Jacobson, a developer for affordable housing with his company, LC Developments, in Ann Arbor. "They provided the backbone for an awful lot of development and economic activity over the years."
MSHDA showed a profit of $32.2 million in 2007, but it dropped to $28.1 million in 2008 and just $4 million last year.
Also, delinquent payments to MSHDA on its rental housing loans have risen from $1 million in 2004 to $7 million in 2009. That's key because MSHDA's only source of revenue is the payments on the below-market-interest-rate loans it gives to developers to assist in affordable housing. MSHDA's latest report on its home loans shows 12.1 percent of its loans are more than 60 days delinquent or foreclosed.
The state is moving MSHDA under direct review of the Treasury Department, an effort it says will incur savings. The state says it is not in danger on defaulting on its loans, but was hurt by the economic downturn.
MSHDA does have $278 million in cash reserves to cover any losses in the near future.
Mary Lou Keenan, a spokeswoman for the MSHDA, said it is not in danger of default on its bonds.
"The drop in housing value has had a negative impact on MSHDA's income," Keenan wrote in an e-mail.
Terry Stanton, a spokesman for the state's Department of Treasury, said he couldn't comment on most questions about MSHDA moving to the treasury until it is finalized in late May.
Stanton did say the move would make MSHDA more efficient and provide greater market coordination.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.