News

FHFA Raises Multifamily Caps by $6 Billion

November 19, 2024

On November 18, the Federal Housing Finance Agency (FHFA) announced that the 2025 multifamily loan purchase caps for Fannie Mae and Freddie Mac (the Enterprises) will be $73 billion for each Enterprise, for a combined total of $146 billion. Click here for CREFC’s Side-by-Side analysis of the 2025 Multifamily Caps.

Key Takeaways

• Caps Increased to $73 billion: FHFA stated that the increases from the $70 billion loan purchase caps per Enterprise in 2024 are “appropriate given current market forecasts.”
• FHFA will closely monitor the multifamily mortgage market and may increase the caps if necessary. Should the actual size of the 2025 market be smaller than initially projected, FHFA will not reduce the caps.
• 50% Mission-Driven Maintained: To maintain a strong emphasis on affordable housing and underserved markets, FHFA will continue to require that at least 50% of the Enterprises’ multifamily businesses be mission-driven, affordable housing.
• Workforce Housing Continues to Be Exempt from Caps: To further promote affordable housing preservation, loans classified as supporting workforce housing properties in Appendix A will remain exempt from the volume caps. (All other mission-driven loans remain subject to the volume caps.)

Why it matters: FHFA Director Sandra Thompson noted that the 2025 caps reflect the Enterprises’ “commitment to provide liquidity to make renting a home more affordable.” She further stated:

“The ongoing workforce housing exemption will continue to enhance the Enterprises’ ability to support properties that preserve affordable rents, including properties preserved or created through corporate-sponsored affordable housing initiatives.”

Go deeper: CLICK HERE for CREFC’s Side-by-Side analysis of the 2025 Multifamily Caps.

Contact 

News Archive

News

House Called for GOP

November 19, 2024

The Associated Press officially called the House of Representatives for the Republican party on Thursday, Nov.14. This victory supplements the GOP’s control of the Presidency and the Senate.

• While a handful of seats remain uncalled, the GOP will have at least a bare majority of 218 heading into 2025. Click here for more in-depth coverage of the uncalled races.

By the numbers: Control of the House this election cycle came down to just over two dozen toss-up seats across the country. As of Monday, here is where the numbers stand:

• Democratic Pickups (7): AL-02, CA-27, LA-06, NY-04, NY-19, NY-22, OR-05
• GOP Pickups (4): CO-08, MI-07, PA-07, PA-08
• Democratic Holds (31): CA-09, CA-47, CA-49, CT-05, FL-09, IN-01, IL-17, KS-03, ME-02, MD-06, MI-03, MI-08, MN-02, NC-01, NH-01, NH-02, NY-03, NY-18, NV-01, NV-03, NV-04, OH-01, OH-13, OR-04, OR-06, PA-17, TX-28, TX-34, VA-07, WA-03, WA-08
• GOP Holds (23): AZ-01, AZ-02, AZ-06, CA-03, CA-22, CA-40, CA-41, CO-03, FL-13, FL-27, IA-03, MI-10, MT-01, NE-02, NY-01, NY-17, NJ-07, PA-01, PA-10, TX-15, VA-02, WI-01, WI-03
• Too Close to Call (5): AK-AL, CA-13, CA-45, IA-01, OH-09
• The parties have thus far split these toss-ups, landing themselves in nearly the same spot they found themselves before the election. Click here for the list of the toss-up seats from Cook Political Report.

In our House bellwethers, Democrat Eugene Vindman won his race with 51.2% of the vote in VA-2 to keep the district in Democratic hands.

• Just a couple miles south, in VA-7, Republican Jen Kiggans won her race by 50.8%, a nearly identical margin from her 2022 victory.
• Both were narrowly favored.

With the decisive victory for President Trump on the national level, conventional political wisdom says that Republicans should have a commanding majority in the House of Representatives and won more competitive seats.

Control, but for how long?

Every seat will count in order for Republicans to pass their agenda come January. Notably, President-elect Trump has picked three House members to be a part of his new administration.

• Rep. Matt Gaetz (R-FL-1), Attorney General nominee. Gaetz resigned from the House on Nov. 13 as soon as he was publicly nominated to the position.
• Rep. Mike Waltz (R-FL-6), National Security Advisor nominee
• Rep. Elise Stefanik (R-NY-21), Ambassador to the U.N. nominee

Click here to see the full list of his cabinet picks.

Why it matters: While all of the members listed above are from “safe” Republican seats, their vacancies may cause hurdles for House Speaker Mike Johnson (R-LA) as he looks to pass legislation in the first 100 days.

Please contact James Montfort (Jmontfort@crefc.org) with any questions.

Contact 

Republicans Sweep Elections

News Archive

News

Post-Election Policy Outlook: GOP Trifecta

November 19, 2024

Republicans will have the lawmaking “trifecta” of the Presidency, Senate, and House in January 2025. CREFC updated its scenario analysis with the outcomes, the highlights of which are summarized below.

Why it matters: The trifecta will make legislating on tax and budgetary items easier, though not a walk in the park as the House majority will be narrow (see story below). The 53-47 GOP Senate will make it easier for some Trump nominees to get confirmed, but the filibuster means 60 votes are needed to advance most legislation, outside “reconciliation” (more below).

Go deeper: For CRE and multifamily finance the largest impacts will be tax related, but a change in regulatory policy could have positive effects as well.

• Reconciliation: Republicans will use budget reconciliation to enact tax legislation with a simple majority in the Senate, thus bypassing the filibuster for items related to government taxing and spending. The GOP used the procedure for tax in 2017, and Democrats employed it for the American Rescue Plan and the Inflation Reduction Act. While reconciliation legislation must have a nexus to spending, both parties have sought to push the bounds of what can qualify under the rules.
• Tax: The starting point is a reauthorization of the expiring provisions of the Tax Cuts and Job Act (TCJA). However, deficit-minded Members of Congress may seek to offset tax cuts with spending reductions or other tax hikes. The 199A pass-through deduction, which impacts real estate businesses, is a key item expiring. However, the deduction has strong GOP support. Speaker Mike Johnson (R-LA) has said other proposals, like no tax on tips, would need to be “paid for” with offsetting spending cuts.
• GSE Conservatorship: President-Elect Donald Trump’s forthcoming nominees for Treasury Secretary and Federal Housing Finance Agency (FHFA) Director will be key figures in implementing any administrative exit from the conservatorship. While legislative action on GSE reform has been nonexistent over the past several years, there are rumblings that some lawmakers may be looking to use reconciliation to advance reform efforts.
• Regulatory Freeze: A new president usually implements a pause on new regulations to allow new appointees time to have input on the final rules. While the edict does not necessarily apply to independent agencies, the Congressional Review Act (CRA) allows Congress and the President to disapprove recently finalized regulations with a simple majority in the Senate. With a GOP trifecta, lame-duck regulations are in danger of repeal, which adds teeth to the freeze. As such, the Basel endgame capital rules are unlikely to be finalized near term.

Financial Regulator Shuffle: The scenario analysis includes a complete chart on key financial regulator term expirations.

• We highlight some immediate impacts when Trump takes office on January 20.
• The Senate may confirm cabinet level officials early and the other vacancies may be filled by acting officials until a nominee is confirmed.

Of note, the Federal Vacancies Reform Act lays out default filling vacant positions. According to the Congressional Review Service: “As a default rule, the first assistant to a position automatically becomes the acting officer. Alternatively, the President may direct either a senior agency official or a person serving in any other [Senate-confirmed position] to serve as the acting officer.”

• Treasury and HUD Secretaries: While there is no term of office, a Secretary traditionally steps down with a new administration or could be removed by the new president.
• FHFA Director: The President can fire Director Sandra Thompson and designate an acting Director who is Senate confirmed or selected from the order of succession in the agency. Thompson was acting director by virtue of being a deputy director after President Joe Biden fired Mark Calabria.
• Comptroller of the Currency (OCC): Michael Hsu is the acting comptroller for the Office of the Comptroller of the Currency (OCC) He could be replaced with a different acting official. The Comptroller serves on the Federal Deposit Insurance Corp. board, and the OCC is an independent agency that coordinates federal banking regulation with the Fed and FDIC. A quick switch here ensures the Trump administration will have an immediate say on bank regulation.
• CFPB Director: Consumer Financial Protection Bureau (CFPB) Rohit Chopra will likely be removed by President Trump and replaced with an acting official.
• SEC Chair: The Securities and Exchange Commission (SEC) Chair, Gary Gensler, is expected to resign, as is traditional with a change in administration. Trump would name an acting chair from one of the two GOP commissioners, Hester Peirce or Mark Uyeda, in the interim period.
• The Fed: The Board of Governors is full, and the earliest terms expire in 2026 (unless someone steps down first). Speculation is rampant that President Trump will fire Jerome Powell. However, Fed Chair Powell confirmed earlier this month he will not step down and does not believe the president has the power to fire him.

The bottom line: The Republican trifecta and forthcoming regulatory transitions will allow Republicans and the Trump administration to move quickly on tax legislation and unwind or stop recent regulations, but other priorities will require bipartisan support or time for new regulators to take their seats.

Contact David McCarthy (dmccarthy@crefc.org) with questions. 

Contact 

Click the image for the full 2024 outcome analysis. 

News Archive

News

ULI and Heitman Publish Report on CRE Property Insurance

November 19, 2024

In October, the Urban Land Institute (ULI) and Heitman published a detailed report on CRE property insurance trends, entitled "Insurance on the Rise: Climate Risk and Real Estate Investment Decisions.”

The report notes that the difficult CRE insurance market, characterized by escalating premiums, tightening coverage, and heightened underwriting scrutiny, stems from the following issues:

• Increasing frequency and severity of natural disasters, particularly secondary perils like hail and severe convective storms;
• Lower reinsurance capacity and rising costs, which boost primary insurance rates;
• Inflation, coupled with soaring construction costs, contributing to higher replacement values;
• Rising litigation costs and legal system abuse that amplify claim payouts; and
• Regulations in some jurisdictions that cap insurance rate increases.

Rising insurance costs are squeezing net operating income (NOI), particularly in the multifamily sector, hindering affordability, impacting investment returns, and sometimes threatening deal execution.

Investors are becoming increasingly cautious about investing in high-risk areas, exploring alternative markets, and incorporating climate risk into their decision-making. According to an investor interviewed by ULI and Heitman:

"Physical climate risk is a clear component and maybe I would argue one of the primary drivers of how we’re thinking about where we go next from a geographic perspective.”

What’s next: Investors are tapping sophisticated insurance programs involving multiple layers of coverage from various carriers to manage risk and secure more competitive pricing. Other strategies include the use of:

• Higher deductibles, aggregate deductibles, and self-insurance strategies to balance risk retention and premium savings;
• Event-based parametric insurance policies for specific perils like windstorms, offering a clear-cut payout mechanism;
• Greater portfolio size and diversification across geographic regions and asset types to reduce insurer risk; and
• Investment in resilient structures.

CREFC continues to focus on property insurance issues and potential policy solutions. Please see here for insurance-related presentations.

• CREFC’s Miami Conference will feature a panel on CRE financing risk amid skyrocketing insurance costs.

Contact 

News Archive

News

Capital Markets Update Week of 11/19

November 19, 2024

Private-Label CMBS and CRE CLOs

New-issue activity slowed last week with only one transaction pricing:

• WFCM 2024-5C2, a $720 million conduit backed by 27 five-year loans secured by 138 properties from Wells, Goldman, JPMorgan, UBS, and Citi

According to Commercial Mortgage Alert, three transactions totaling over $3 billion are in various stages of marketing. In addition, CMA noted issuers were lining up transactions for an end-of-year push after near-record production in October (~$17 billion).

By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totaled $101.5 billion, 154% ahead of the $39.9 billion for same-period last 2023.

Spreads Trend Tighter

• Conduit AAA and A-S spreads were unchanged at +85 and +115, respectively. YTD, AAA and A-S spreads are tighter by 31 bps and 50 bps, respectively.
• Conduit AA and A spreads were tighter by 5 bps at +145 and +175, respectively. YTD, AA and A spreads are tighter by 80 bps and 200 bps, respectively.
• Conduit BBB- spreads were tighter by 5 bps at +475. YTD, BBB- spreads have tightened by 425 bps.
• SASB AAA spreads were tighter by 5 bps to a range of +105 to +130, depending on property type. YTD, they have narrowed from a range of +143 to +212.
• CRE CLO AAA and BBB- spreads were unchanged at +160 / +165 (Static / Managed) and +450 / +475 (Static / Managed), respectively. YTD, AAAs have narrowed from +200 (Static / Managed) and BBB- bonds +600 (Static / Managed).

Agency CMBS

• Agency issuance totaled $4 billion last week, consisting of $2.1 billion in Fannie DUS, $1.7 billion in Freddie K, SBL, and Multi-PC transactions, and $230.9 million in Ginnie Mae transactions.
• Agency issuance for the year totaled $99.1 billion, 8% lower than the $107.9 billion for same-period 2023.

The Economy, the Fed, and Rates…

Economic Data

• Inflation Trends: October's inflation data highlighted the persistence of price pressures. The Consumer Price Index (CPI) rose to 2.6% in October, up from 2.4% in September, matching economists' expectations. Core CPI, which excludes volatile food and energy prices, held steady at 3.3% on an annual basis.
• Retail Sales: Retail sales grew by 0.4% in October, surpassing expectations of 0.3%. This came with significant upward revisions for September (from 0.4% to 0.8%), reflecting resilient discretionary spending, particularly in restaurants and autos.
• Small Business Optimism: The National Federation of Independent Business (NFIB) Small Business Optimism Index improved in October, exceeding expectations. Business owners are increasingly optimistic, partly due to anticipated policy changes under the incoming administration. Inflation remains a significant concern for small businesses, particularly regarding labor quality and taxes.
• Core PCE Projection: Using inputs from October CPI and PPI data, Bloomberg Economics estimates the Fed's preferred core PCE measure will accelerate to 2.8% year-over-year when released on November 27.

Fed Policy

• Interest Rate Trajectory: Fed Chair Jay Powell signaled a gradual approach to lowering interest rates, stating, "The economy is not sending any signals that we need to be in a hurry to lower rates." With the economy showing "remarkably good" performance and inflation gradually decreasing toward the 2% target, the Fed plans to approach future rate cuts cautiously. The Fed has reduced the benchmark rate by 75 basis points since September, bringing it to a range of 4.50% to 4.75%.
• Inflation Assessment: Policymakers highlighted the difficulty in wringing out the last bits of inflation. Powell described recent inflation data as "more of an upward bump than we had expected," though he maintained that the overall downward trend remains intact. He expects inflation to continue retreating, "albeit on a sometimes-bumpy path."
• Impact of Fiscal Policies: The incoming Trump administration's proposed policies, such as higher tariffs and tax cuts, introduce additional uncertainty to the economic outlook. While these policies could stimulate growth, they may also lead to higher inflation. Powell stated that the Fed would be careful in adjusting monetary policy until there is more clarity on the timing and impact of fiscal changes.
• December Rate Cut Uncertainty: Market participants are adjusting to the possibility of a slower pace of monetary easing. Elevated valuations in equity markets and rising bond yields suggest increased vulnerability to economic data and policy shifts. Futures markets now indicate about a 60% probability of a December rate cut, down from about 80% last month.

Treasury Yields

• Yield Movements: Treasury yields climbed sharply last week, with the 10-year yield reaching 4.50% at one point (the highest since May 31). This surge followed strong retail sales data and Powell's cautious remarks on rate cuts. The 10-year yield ended the week up 14 bps at 4.44%, while the 2-year yield rose 5 bps to 4.30%.
• Yield Curve: The yield curve steepened as long-term yields outpaced short-term gains, reflecting concerns over fiscal sustainability and inflation risks tied to the incoming administration’s potential policies.

You can download CREFC’s one-page MarketMetrics with statistics covering the economy and the CRE debt capital markets here.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.

Contact  

News Archive

News

Forum Spotlight: IG Bondholders

November 19, 2024

The IG Bondholders Forum’s Leadership Working Group, which includes Rajesh Bansal (Forum Chair), Adam J. Smith (Chair-Elect), and Richard Razza (Past Chair), sets agendas and priorities for the Forum and represents investors on CREFC’s Policy Committee.

Key Investment-Grade Bondholder Focus Areas:

• CRE CLO Surveillance: The CRE CLO Surveillance template is being developed to provide standardized information to investors in a usable Excel-based format. CREFC will host a meeting at the January conference in Miami to solicit additional feedback from all constituents. We aim to have the first draft of the surveillance file ready for use by Q1 2025.
• Ongoing dialogue with stakeholders of the forum (IG investors) to understand their concerns and identify solutions.
• The Leadership Group is concerned with loan extension risk due to higher interest rates. Notably, corporate single-A rated bonds continue to outperform AAA-rated CMBS.

Looking ahead, leaders are focused on working with servicers and trustees to improve responsiveness and access to loan and deal information in a timely manner.

What’s next: Forum leaders look forward to presenting CREFC members with an update on their market sectors in Miami. As June 2025 approaches, the chairs will seek nominations for the next Chair-Elect to join their leadership slate.

To join the IG Bondholders Forum, please register here.

For any forum-related questions, please contact Rohit Narayanan (RNarayanan@crefc.org).

Contact 

Fall 2024

News Archive

News

ASTM Publishes Standards for Property Resilience Assessments

November 5, 2024

On November 4, ASTM International published its eagerly anticipated Standard Guide for Property Resilience Assessments (PRAs).

The guide, in development since April 2021, aims to help real estate investors, owners, operators, and lenders better understand the natural hazards that may affect a property today or in the future.

• PRAs can be performed alongside other important ASTM assessments, such as the E1527 Phase I Environmental Site Assessment and E2018 Property Condition Assessment, as part of an organization's property-level due diligence process.

Why it matters: Standardizing data and information is increasingly vital for assessing climate-related impacts on commercial real estate.

• CREFC is developing a climate-related due diligence tool for lenders and investors to use when assessing properties backing potential loans or investments.
• The ASTM Standard Guide for PRAs will be an important input into this process.

Holly Neber of AEI Consultants chaired the effort, with other participants drawn from a variety of sectors, including:

• Engineering, architecture, earth sciences, climate science, and climate risk modeling;
• Property insurance;
• Law, finance, and financial risk management; and
• Construction and development, property ownership, investment, management, and consulting.

According to Neber:

“We brought different insights to the question of how to perform these assessments, but the one common theme was that we needed to work together because the demand for answering these questions was growing, and we needed a common language and framework to do that work together.”

As described in ASTM Standardization News, the guide “establishes a generalized, systematic approach to the assessment process” via three stages:

• Stage 1: identifying natural hazards likely to affect a property;
• Stage 2: evaluating site-specific risks posed by these hazards, as well as the capacity of the property to absorb and recover from them; and
• Stage 3: identifying potential conceptual resilience measures to enhance property-level performance, if needed.

Neber notes that the work will continue: 

“Smaller teams from our task group will also begin working on practices to emerge from the guide. ASTM is such a great forum for all these different perspectives to come together and find common ground.”

Contact 

News Archive

News

Election Night Guide

November 5, 2024

On this Election Day, as the nation awaits the results of its presidential election and various races for seats in Congress, remember that not all states may have final vote counts because of factors such as processing mail-in votes. There may be, however, some early indicators that suggest which party is faring well even before the final ballot has been accounted for.

Below are a few early signs to look for to ascertain which party is doing well before all the results are tallied.

President: Vice President Kamala Harris or former President Donald Trump need at least 270 electoral votes to win, and most paths to victory run through the swing states of Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin.

North Carolina is a competitive swing state this year, as President Trump only won it by just over 74,000 votes or a 1.4% victory margin in 2020. Polls close at 7:30 PM ET.

• Watch the vote counts in the suburbs of Charlotte, Raleigh, and Greensboro to see how well Harris’ message is resonating.
• If Harris runs up the vote count enough in these populous centers of the state, she has a chance to win. However, if Trump eats into her margins in the cities and the surrounding suburbs, it could spell trouble for the Democrats.

Florida counts its votes very quickly and its results should tell us much about where the candidates stand going into the final stretch. Polls close at 7:00 PM ET.

• While Trump is expected to win the state for a third time (2016 by 1.2% and 2020 by 3.3%) the margin of victory may be an early barometer of national sentiment.
• Trump’s margin and his performance in large population centers, like Miami, Orlando, Tampa, and Jacksonville will be highly scrutinized. The results will be another indicator of how effectively the Harris campaign is making inroads with the voters she needs to win the White House. A better-than-expected performance by Harris in the sunshine state could suggest Harris does well in other states.

House: Republicans currently control the House of Representatives with a 220-212 margin and three vacancies. Democrats need to flip just five seats to regain control of the chamber going into the next Congress.

The Cook Political Report rates 22 seats as toss ups, which is less than 5% of the total seats in the chamber. Most election predictions have the odds of control for each party at 50-50.

Virginia’s 2nd and 7th Congressional District results could prove to be early indicators of how each party is performing nationally, and where control of the House may be headed.

• These two swing districts were reliably Republican prior to the 2018 midterms when Democrats won both amid a wave of anti-Trump sentiment. However, Republicans retook the 2nd district in 2022 and came close to winning in the 7th district.
• Retiring Rep. Abigail Spanberger (D-VA) has held the district since 2018 and is retiring to run for Governor. She won in 2022 by a margin of 52-47%.
• The 2nd district is held by Republican Jen Kiggans who took office after the 2022 midterms, defeating Democrat Elaine Luria by a margin 51-48 %.

Senate: The Senate is controlled by the Democrats with a margin of 51-49.

• The tight margin gives Republicans the clear advantage in retaking the chamber.
• With a guaranteed pickup in West Virginia and likely pickup in Montana, the GOP is expected to control the chamber, but the question is by what margin.

The Senate elections in Michigan, Ohio, Pennsylvania, and Wisconsin are all rated as toss ups by Cook Political Report. If any of these seats is won by a margin greater than 3%, it will be viewed as an early indicator of success for the corresponding party nationally.

Ohio: Senator Sherrod Brown (D-OH) is trying to win re-election in a state that voted for President Trump by an 8% margin in 2020. If Brown holds on to his seat or even loses by a narrower-than-expected margin, it will be a good sign for Democrats across the country.

The bottom line: The election could take days to be settled. In 2020 the election wasn’t officially called until Saturday, Nov. 7, four days after Election Day.

Mail-in voting reached a historical high in 2020, when 46% of all votes tallied, or around 72 million votes, were cast via mail, amidst the pandemic.

• The percentage of mail-in ballots is expected to have declined from 2020, however large-scale mail-in voting will cause some inevitable delays in declaring a winner.
• States like Pennsylvania and Wisconsin don’t begin counting ballots until Election Day. For a full list of how each state processes its mail-in ballots, click here.

Be patient, as a similar waiting period is likely this time around. Click here to see when the AP called each state last cycle.

Please contact James Montfort at Jmontfort@crefc.org with any questions.

Contact 

News Archive

News

Pondering the Securitization of Community Development Financial Institution Loans 

November 5, 2024

Do Community Development Financial Institutions (CFDIs) Have a Role to Play in Meeting the Demand for Affordable Housing?

The bottom line: The growth of the securitization market in all its permutations – from commercial real estate to autos and credit cards, to home loans – is responsible for delivering heightened access to capital and increased debt liquidity.

On October 22, the Federal Reserve Bank of San Francisco hosted a meeting with CDFIs, other lenders, and securitization market participants to discuss the feasibility of CDFIs securitizing their loans. Securitizing these loans would allow for the recycling of capital in an effort to maximize funds available to CDFIs. CREFC’s Executive Director Lisa Pendergast attended the meeting.

The ultimate goal of this initial meeting was to determine the viability of a secondary market for CDFI loans.

What Are CDFIs? The U.S. Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) helps promote:

• Access to capital and local economic growth in urban and rural low-income communities across the nation via monetary awards and the allocation of tax credits.

Financial institutions certified by the CDFI Fund are eligible to apply for monetary support and training to build organizational capacity. The CDFI Fund’s model is competitive and each of its programs provides CDFIs with the flexibility to determine the best use of limited federal resources in their community.

As per the New York Federal Reserve:

• CDFIs are certified by a sub-agency of the U.S. Department of Treasury.
• They are mission-driven financial institutions specializing in lending to low- and moderate-income communities.
• Have access to sources of capital that are not available to other financial institutions. The main sources of CDFI capital include technical assistance grants and long-term capital at below-market rates. And yet, those sources of capital are limited.

By the numbers: As per the Federal Reserve Bank of New York, the CDFI industry has experienced significant growth, with industry assets tripling over the last five years to $452 billion.

• There are currently 1,487 CDFIs (as of May 2023), representing a 40% increase since 2019.

CDFIs come in various forms, including:

• Community Development Banks
• Credit Unions
• Loan Funds, and
• Venture Capital Funds

Loan funds and credit unions comprise the largest share of CDFIs at a combined 85%.

CDFI Expansion through Securitization

What's next? While there are additional pathways to expanding CDFI capital beyond securitization:

• Securitization has the potential for becoming a key avenue for capital expansion and recycling in the sector.
• Yet, securitizing these loans could prove challenging given concerns over a lack of homogeneity in loan types, volume, data, and overall standardization across the various institutions involved.

While CDFIs originate many types of loans, multifamily affordable housing loans may prove to be the most attractive avenue in terms of asset classes given the growing need for housing. Notably, Bank of America is the largest private investor in CDFIs with more than $2 billion in loan deposits, capital grants, and equity investments across its over 250 CDFI partners.

Key CDFI Programs

CDFI programs provide monetary awards to FDIC-insured banks for increasing their investments in CDFIs and for expanding their lending, investment, and service activities in economically distressed communities.

The CDFI-Related Programs include:

• Bank Enterprise Award Program. Provides monetary awards to FDIC-insured banks for increasing their investments in CDFIs and for expanding their lending, investment, and service activities in economically distressed communities.
• CDFI Program. Financial Assistance (FA) and Technical Assistance (TA) Awards for certified and emerging CDFIs to support affordable financial services and products, including single-family mortgage lending, in distressed communities.
• Technical Assistance Awards. Focused on start-up or existing CDFIs, these awards are used to build capacity to underwrite loans and provide other services to its target market through the acquisition of goods and services such as consulting services, technology purchases, and staff or board training.
• Capital Magnet Fund. Competitive grant program to CDFIs and nonprofit housing developers to support financing tools, such as loan loss reserves or loan guarantees, to attract private capital for affordable housing and community and economic development associated with affordable housing.

Potential for Developing a Robust Secondary Market for CDFI Loans?

The sources of capital for CDFIs (as per a Federal Reserve Bank of Richmond survey) tend to be small and include:

• Deposits,
• Income earned from fees and interest on loans,
• Government funding, and
• Bank lenders seeking to meet their Community Reinvestment Act obligations

The ~$450 billion in CDFI assets represents just a fraction of the nearly $23 trillion held by all non-CDFI U.S. banks.

• Limited access to capital sources is one reason why the industry is small relative to other lender types.

The ability to securitize CDFI loans would improve liquidity of CDFIs by affording them greater access to recycle capital and in turn the ability to originate more loans to low- and moderate-income communities.

CDFIs and Securitization

What we do know is that some CDFI loans are sold today in the secondary market — both on an individual or pooled basis.

• According to Treasury, billions of dollars in single-family home loans originated by CDFIs are sold each year.
• These loans, including loans backed by government programs, typically meet standards set by institutional investors and government sponsored enterprises, such as Fannie Mae and Freddie Mac.

To the good, there is some potential to securitize CDFI loans as they are generally granted on standardized terms and a robust dataset exists on loan underwriting and performance. The loans are also created at large enough volumes to attract investors either on a standalone basis or pooled.

Standardization and Detailed Data Gathering Imperative to Forward Movement

As in all securitization product, investors and credit rating agencies will demand and expect to receive a high level of pertinent data, allowing them to appropriately determine the level of risk they are assuming and possible returns. Specifically, investors must have the data available to understand the nature of the collateral, the structure of the loans, and historical loan performance across market/economic scenarios.

CREFC will continue to keep you updated on what potentially could be a novel and attractive market for institutional investors. Please reach out to CREFC’s Lisa Pendergast (LPendergast@crefc.org) if we wish to become involved in this effort. 

Contact 

News Archive