The definition of what mortgages can be securitized has expanded to include some types of affordable housing now that $26 million worth of MBS have been placed successfully.

The security, dubbed MILC (for Mortgage Investments in Low-Income Communities), consisted of six tranches that were privately placed with several investors. The bonds carry a pass-through rate of 5.86% and all tranches were priced and sold at a discount based upon that pass-through rate.

Roughly $18 million of the total was in a triple-A-rated tranche. The rest consisted of a single-A-rated tranche worth $2.6 million, a double-B tranche of $1.3 million, a triple-B tranche of $800,000 and two unrated tranches worth roughly $3.3 million.

"Low-income housing is an important social good, but investors do not typically pick low-income housing as a top investment choice," said Grace Huebscher, president of National Cooperative Bank Mortgage Corp. "Creating a triple-A-rated security makes this an easy choice for them, and thus will lead the way for other lenders in affordable housing to do the same."

The certificates carry an adjustable rate, with the weighted average months to next adjustment being 39 months, said National Cooperative Bank, the issuer and placer of the mortgage-backed securities.

The MILC issue will make possible the financing of 2,150 nonrental housing units in cooperatively owned buildings located in 23 communities in 10 states. Of the total, 73% of the mortgages will be for low-income housing--for families earning no more than 80% of the median income in the city where the housing is located. The other 27% will be for market-rate housing.

MILC's cash flow is a bit more complicated than mortgage-backed securities in which homeowners provide all the money. In MILC's case, 47% of the mortgage loans feature some sort of subsidy, including Section 8 HUD rental assistance, Urban Development Action grants or Community Development Block Grants.

Investing in the security were Cigna Insurance as well as the United States Trust Co./Boston, the investment manager for Calvert Social Investment Fund. NCB and its NCB Development Corp. kept the unrated tranches in their portfolios.

Huebscher predicted MILC will lead to the development of a private market in affordable housing that will complement and complete with securities backed by Fannie Mae and Freddie Mac.The two agencies dominate the affordable housing MBS market, and their underwriting rules have set the standard for the sector.

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