WASHINGTON -- Over the objections of his housing secretary, President Bush yesterday signed into law a bill that partially lifts a ban on the use of private-activity bonds in conjunction with the HOME housing affordability program.

The new law, which also reauthorizes HOME and several other housing programs, allows state and local governments to count a portion of their multifamily and mortgage bond issuance in the contributions they make to the program that are eligible for federal matching funds.

For states and localities participating in HOME, the ability to use private-activity bonds "is a very powerful tool and will mean significant things to the tax-exempt bond market," said John T. McEvoy, the executive director of the National Council of State Housing Agencies.

Under the new law, 25% of an issuer's total contribution to the HOME program may consist of private-activity housing bonds. Within that amount, an issuer is permitted to count 50% of the value of multifamily housing bonds that are issued and 25% of the value of mortgage bond issuance that are sold toward projects eligible to receive HOME funding.

Housing and Urban Development Secretary Jack Kemp had sent the President a strongly worded letter three weeks ago urging him to veto the bill because it made a number of changes to housing programs that Kemp found unacceptable.

The new law drew praise from Treasury Secretary Nicholas Brady, who said it will "greatly enhance the stability, affordability, and availability of housing finance well into the future." A HUD spokesman said Kemp had no comment on the President's action.

Although housing advocates said they were happy about the bill, one said he had mixed feelings because the ban on private-activity bonds was not lifted completely.

"We're pleased, although they didn't go as far as we wanted them to," said John C. Murphy, the executive director of the Association of Local Housing Finance Agencies.

Murphy said his group will continue to push for a low that allows the full value of private-activity housing bonds to be counted toward state and local contributions to HOME. Whether that push will come next year, however, is still uncertain, because the new law reauthorizes HOME for two years.

But Murphy said there may be an opportunity for additional housing legislation next year if Gov. Bill Clinton of Arkansas is elected President.

"His housing policy calls for greatly increased funding for...HOME, along with increasing the flexibility in the use of HOME funds," Murphy said. "That says to me he's going to have a recommendation to Congress," which would give housing groups "the opportunity to revisit the HOME matching issue."

McEvoy said his group would "see how this works, and if places can't meet the match requirement, we'll ask for" more.

States and localities would have gotten more under legislation approved by the House in August. That version would have allowed them to count the full value of both multifamily and mortgage bond issuances as part of their eligible contributions. The Senate bill, however, would have permitted only 10% of the value of multifamily issuances to be counted toward the match. Mortgage bond issues would not have been eligible.

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