After spending the holiday week attempting to get my arms around the affordable housing market – the issues, the solutions and the programs – I covered maybe 1/1000th and I got lost several times. Hats off to the experts in this field. It’s a labyrinth.
What I may be able to contribute to the discussion is surfacing risk management solutions with an aim towards simplification, specifically:
- Risk exposures are lower with diversification so bigger pools of loans (collateral) are less risky than small pools – think shared risk pools
- A grant provided to insure against risk does not expose the grantor to losses – it is a grant
- Funding 30-year fixed rate mortgages on balance sheet is tough – a secondary market for mortgages targeted to affordable housing initiatives would help enormously, securitization even further so
- Leverage is what banks do (FHLB members and the FHLBs themselves) and it is what is needed to amass sufficient lendable funds. Leverageable loans.
It is time to think big and be creative.
Fortunately, it does appear this process has begun, with the FHLBanks developing a variety of pilot programs to get at the issues – full speed ahead, and more money too, please.