Copyright 2003 American Banker-Bond Buyer a division of Thomson Publishing Corporation

June 16, 2003

SECTION: AFFORDABLE HOUSING; Vol. 27; No. 38; Pg. 23
LENGTH: 779 words

HEADLINE: Bank of America Helps to Create Market for Affordable Housing Loans
BYLINE: By Amilda Dymi
DATELINE: SAN FRANCISCO

BODY: Small-size affordable housing loans are not very attractive to large-scale secondary market investors and insurers. Yet Impact Community Capital LLC here, representing a group of insurance companies interested in community investing, has come up with a solution through the "Community Impact Loan Program" and a recent alliance with Bank of America.

Impact has pledged to provide $475 million in long-term community development funds for the construction of 15,000 new affordable housing units over the next three years.

BoA will originate the Community Impact construction-to-permanent financing loans. As the volume of affordable housing loans generated through the community development process increases, BoA will deliver the loans to Impact for evaluation through various major rating agencies. After the rating, using a format BoA said Impact has developed specifically "for the securitization of large-scale pools of affordable housing mortgages," the loans will be packed into mortgage-backed securities. Impact will purchase, aggregate and securitize these loans in pools of about $150 million. Finally, the bonds will be sold to 10 insurance companies associated with Impact that will serve as the ultimate investors.

Impact president Dan Sheehy sees CI loans as an urban revitalization vehicle that can generate affordable housing growth through one-stop access to long-term capital.

What is new about the alliance, according to Impact, is that it brings the insurance industry, at least Impact-member companies, into a strategic alliance with one of the largest loan originators in the country ven though the insurance industry has been a major institutional community investor in the past, Impact said they would invest "as the opportunity arose."

"What this alliance does is create a pipeline that will flow a very large volume of these important mortgages into this program," says Impact spokesman Tupper Hull. "Through Impact, the insurance industry can securitize these mortgages and create the kinds of investment that the insurance industry needs if it is going to do this type of investing at scale."

It is a way for the insurance industry to become more of a permanent partner in the affordable housing market.

Mr. Hull noted how over the past years the insurance industry, "at least the responsible folks in the industry," has been trying to find ways to meet the need and responsibility to become as involved in community development projects as they possibly could, considering that insurers are not banks and cannot take advantage of Community Redevelopment Act legislation types of opportunities.

"The problem with the insurance industry is that they need huge amounts of investments, they need scale, because they are not equipped to deal with the one-offer idiosyncratic types of investments, which is what a lot of affordable housing is," he explained. "It is not a negative thing, but it consists of smaller loans, structured to compete individually."

Another impediment to being more active in the community development market has been many state legislation requirements regarding the types of investments insurers can make.

Impact was specifically created in 1996 to assist members investing in community development projects. It was created for a purpose - to develop a format that would allow insurers to securitize large pools of rather small affordable housing mortgages in compliance with the specific investor interests when investing in community development. The aggregated loans also need to share similar characteristics, because to securitize loans, one needs to have like assets. The size of the loan pools may vary, but they are expected to be approximately $150 million. After creating the program, Impact said it has successfully securitized several large portfolios so far, and the alliance with BoA was "the next logical step."

CI loans are attractive to borrowers also, because of competitive rates and the convenience of simultaneous financing for both construction and long-term financing from the insurers all at one time. According to BoA president of community development banking, Doug Woodruff, CI loans will provide "a reliable" source of capital for community development due to "competitive pricing, flexibility and efficient execution."

Mr. Woodruff also is confident the collaboration will be profitable to all the companies involved, stating that as research shows, "investments structured to meet community capital needs can provide reasonable returns for investors."

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