Investing in securitized multifamily community development loans is an effective but underused way for banks to funnel capital into low-income areas, Comptroller of the Currency Eugene A. Ludwig said Thursday.
"Community development securities remain an underutilized investment option - but one I believe can help banks provide capital to their communities," Mr. Ludwig told the Massachusetts Housing Investment Corp. in Boston. "Its potential is largely unrealized as a resource to finance community development beyond single family affordable housing."
The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. have developed healthy secondary markets for single-family, low-income, and moderate-income mortgages. But nothing comparable exists for multifamily affordable housing loans, Mr. Ludwig said.
A major obstacle to the growth of this market has been the fact that these securities generally are not rated by nationally recognized agencies, he said.
However, a recently revised rule from the Comptroller's Office helps national banks get over this hurdle, Mr. Ludwig noted. National banks may invest up to 5% of their capital and surplus in unrated community development securities as long their performance can be gauged by credit enhancements such as repurchase agreements.
"Bank participation ... is one important way to stimulate this important market," Mr. Ludwig said.