WASHINGTON -- The directors of the Association of Local Housing Finance Agencies on Friday approved guidelines recommending that local housing issuers report annually to the secondary market on their bonds' status and have audits and cash-flow analyses done every three years on the projects.

Those are two major provisions of a package of voluntary secondary market disclosure standards developed this spring by a task force of the association and approved at last week's meeting in Washington of the group's board of directors.

John Murphy, executive director of the association, said it will spend the next few weeks fine-tuning the proposals and then distribute them in final form at the association's fall meeting this November in Chicago.

"The board adopted the guidelines in substantially final form," said Chuck Brass, director for development for the New York City Housing Development Corp. and chairman of the task force. "But there are still a number of parties that may wish to comment on them. We don't anticipate major changes."

Mr. Murphy said a key recommendation in the draft guidelines is that an audit and cash-flow analysis be done for each single-family housing deal every three years.

"That would be an early warning signal that would uncover problems. Now they are done very infrequently or not at all," he said, noting that such reviews are "quite expensive."

The board believes, he said, that the time has come to get information out on the soundness of bond issues so as to uncover any potential problems.

"The upshot of the whole thing over time is that those who don't report are going to pay a price in terms of the marketability of the bonds," Mr. Murphy said. "They will be more expensive. Investors are going to demand a premium to be comfortable."

The package now circulating for final comment includes four pieces -- sample indenture agreements for single and multifamily housing issues and sample formats that local single and multifamily housing issuers would use to report annually to repositories.

The reporting formats were modeled after forms developed by the National Council of State Housing Agencies for state housing issues. But they differ in that the state association calls for quarterly reporting, rather than annual reporting.

The indenture language is modeled after language for secondary market disclosure developed by the corporate trust committee of the American Bankers Association.

In a key indenture provision anxiously sought by bond analysts, local multifamily housing project owners would supply trustees with occupancy data and other information on routine operations of their projects on a regular basis to help investors get a snapshot of the day-to-day health of the developments, Mr. Murphy said.

The association's approval of the guidelines comes a year after John Nuveen & Co. warned in a 160-page report that many of the local single-family mortgage bond deals its analysts researched in the previous 15 months showed signs of trouble, but that investors were not being warned of those problems.

The association's push for better disclosure is important because housing bond deals are some of the most intricate and troubled in the market. About 20% to 25% of the association's 130 city and county agency members are issuers of "conduit" bonds, in which a private party borrows through a municipal entity. Such issues have come under increasing scrutiny by federal regulators, federal enforcement officials, and industry groups in the wake of a substantial number of defaults.

"We feel it's important to show that local issuers are willing to take the bull by the horns and not wait for events to overtake us in this area," Mr. Brass daid. Also, "it will help us as issuers [to] achieve better interest rates on our bonds if we are willing and able to provide disclosure."

Currently, said Mr. Murphy, local housing agencies provide information periodically to rating agencies to keep ratings up to date on outstanding issues. "The problem is it's not getting beyond the rating agencies to the secondary market. That's what our efforts are designed" to address.

"We will be telling them to report to the information repositories," he said, referring to national private repositories recognized by the SEC. "We've talked to J.J. Kenny Co. and Bloomberg Financial Services."

The move by the association makes it the latest group to join the recent crusade in the municipal bond market to upgrade disclosure, as the market struggles to head off additional regulation by the Securities and Exchange Commission and Congress.

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