DALLAS -- The New Mexico Mortgage Finance Authority has become the first agency of its kind in the nation authorized to borrow funds directly from the Federal Home Loan Bank system, which has agreed to a two-year, $2 million credit line.

James Stretz, executive director of the authority, said the funds will be used to help first-time, low-income home buyers in New Mexico finance the down payments that often block them from home ownership.

He said the ability to borrow from the Dallas Federal Home Loan Bank would not affect the agency's municipal bond needs. Instead, Mr. Stretz said it would help existing programs and could be duplicated by other state housing agencies.

"We think it is an opportune way for us to complement our other programs," he said. "Eventually, if we expand it beyond the down-payment program, it could be very substantial."

Establishing the program, which also marks the first time a non-member has been approved to borrow from the bank system, took a year of negotiations and paperwork, he said.

"This initial transaction is tailored to New Mexico," Mr. Stretz said. "I would think that just about any other housing authority- . . . should be able to tailor a program to their needs."

Cliff Giles, senior vice president at the Dallas bank, said, "This is a pilot program, and we'll be looking very carefully at how it goes."

He said the same borrowing arrangement could be extended to other state agencies and ultimately to local housing issuers.

Under the New Mexice program, the Federal Home Loan Bank of Dallas may advance the agency up to $250,000 per quarter for the next two years for a total of $2 million. The funds will be used for home-ownership programs for New Mexico residents with annual incomes below 80% of the median income in their area of the state.

The bank is requiring the authority to pledge mortgages insured by the Federal Housing Administration from its portfolio to secure the borrowing.

The agreement allows New Mexico to borrow funds at 50 basis points above what member banks must pay. For instance, last week the rate to member banks for a 12-month borrowing was 5.09%. Funds may be borrowed in maturities ranging from one month to 20 years.

Created in 1932 by Congress, the Federal Home Loan Bank is designed to ensure a stable supply of funds for financing home mortgages in the United States. But the bank has never worked directly with a bond-financed housing agency.

"We have similar goals," Mr. Stretz said.

In a statement, officials for the Federal Housing Finance Board, which oversees the home loan bank system, said the New Mexico program may be the first of many.

"There are some serious and unique housing needs in New Mexico that the program addresses," said Daniel F. Evans Jr., chairman of the finance board. "This program gives us the opportunity to assist the low-income community, stimulate economic development, and determine whether this kind of program can become a model for other areas of the country."

Mr. Giles said New Mexico was considered for the unique arrangement largely because many lending institutions that belong to the bank system had failed in the state.

"There was a capital shortage for affordable housing there because of the failures," he said. "We have situations like that in all five of the states in our district."

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