Federal Reserve Bank of
Entitled, Creating a Marketplace: Information Exchange and the Secondary Market for Community
Development Loans, the report examines impediments and opportunities to creating greater liquidity
within the industry. Liquidity refers to the practice of selling loan assets (and resulting repayment
streams) to third parties in whole or in part to free up capital for subsequent
lending activity. The practice allows financial institutions, such as Funding Partners, to create
greater access to capital for its borrowers without growing its asset base.
A fundamental impediment identified within the report rests upon the presumption
that community development lenders assume greater risk than traditional lenders. Target borrowers are often unable to obtain credit through mainstream institutions;
loan collateral is typically viewed as substandard; while loan terms are usually
more generous than prevailing credit offers. However, the study contradicts such assumptions based upon empirical evidence,
as reported by both the community development and mainstream financial industries.
Through the reporting period (12/31/2004), FP provided $18.9 million in financing
and recognized a net charge-off rate of 1.03%. In contrast, mainstream financial institutions, which include all federally-chartered
banks and thrifts, reported a combined charge off rate equal to 0.56% of loan
assets. Since the study was completed, Funding Partners has grown cumulative lending
activity to $21.5 million with net charge-offs growing modestly to 1.50% of loan
origination in reflection of the softening housing market across most regions
of Colorado.
Under its community mission to attract and consolidate resources for creation
and preservation of safe, adequate housing that remains affordable to low and
moderate-income households, Funding Partners has developed a reputation for expanding
access to capital to demographic markets and geographic regions underserved by
traditional financial institutions. Since the inception of its loan programs in 1997, FP has accumulated over $10.8 million in loan fund capital and manages an additional $2.6 million on behalf of other organizations dedicated to serving similar markets.
Through October 2007, FP has originated 1,300 loans with volume in excess of $23.5 million through its loan funds, representing 3,516 housing units in 32 counties across the state. Total costs of all housing projects exceed $381 million for a leverage rate of 15.8 to 1. Contrary to common perception, loans made directly to low and moderate households
through the House to Home Ownership (H2O) Down Payment Assistance Program® and
organizations that serve that population through the MAHLF program consistently
perform much better than traditional loan products. Cumulative losses since inception equal $320,767, or 1.36% of the combined loan portfolio, despite well-documented foreclosure and bankruptcy
activity plaguing the general housing market.
To view the complete report, please visit: http://www.frbsf.org/publications/community/wpapers/2007/wp07-01.pdf
For more information, visit www.fundingpartners.org.
CONTACT:
Grady
Funding Partners for Housing Solutions
Marketing and Communications
(970) 494-2021
Grady Gardner
Funding Partners for Housing Solutions
214 S. College Ave, Second Floor
Fort Collins, Colorado 80524