For most U.S. homeowners, their house is their most valuable asset and an important way to build personal and generational wealth.1 Right now, however, homeownership rates are declining, with the greatest losses among middle-income households.2 At the same time the distribution of housing wealth is worsening, with low-, moderate- and middle-income households sharing less of the pie—and making the wealth gap worse.3 In today’s high-interest-rate environment, it has become even more expensive to make monthly payments on a home, creating a challenging environment for first-time homebuyers to find an affordable mortgage and accumulate enough money for a down payment.
To ensure that households in underserved communities have access to homeownership and the opportunity to build wealth by owning a home, state housing finance agency (HFA) programs provide affordable mortgages and generous downpayment assistance money funded through bonds underwritten by Morgan. “Part of the lens around equity has been to develop financing strategies that address economic insecurity and the growing wealth gap, which enable people who have lower incomes to participate in the wealth generative power of homeownership,” said Grace Chionuma, Managing Director and Head of Community Development and Strategic Community Engagement in Public Finance at Morgan.
Because HFA programs differ from state to state, Morgan recently hosted a conference for 13 HFAs, to help these agencies share their initiatives, best practices and insights with each other and increase access to homeownership for low-, moderate- and middle-income homebuyers and underserved communities. One of the HFAs at the conference was the Massachusetts Housing Finance Agency (MassHousing). From 2019 through 2022, MassHousing’s Home Ownership Programs provided a total of $3.3 billion across 21,000 loans, with $836 million funded through Social Bonds proceeds.4 97% of the MassHousing mortgages financed with Social Bonds served households below 100% of area median income, with 56% of the loans provided to households earning below 80% of area median income. 42% of the mortgages were made to minority households. As noted by S&P Global, MassHousing’s single-family program mortgage loans cut down on the risk of gentrification and neighborhoods that are segregated by income, and MassHousing aims to spur economic growth in historically underinvested communities.5
“HFA homeownership programs come in different shapes and sizes, and HFAs are always interested in what other states are doing,” said Geoff Proulx, Managing Director and Head of Affordable Housing in Public Finance at Morgan. “It’s becoming harder and harder for families to find affordable homes and to set aside enough money for down payments. State HFAs make a difference by providing affordable loans and down payment assistance while also providing homebuyer education and counseling designed to ensure people don’t run into trouble and can keep their properties to generate wealth over time.”
Helping with Down Payments
HFAs use a variety of strategies to help low-, moderate- and middle-income families purchase homes and have been recently augmenting down payment programs to provide larger amounts and more flexible terms. A significant impediment to first-time homebuyers is accumulating enough money for the down payment necessary to get a mortgage. Proulx underscored the importance of support during the first step of the homebuying journey: “It’s difficult for many first-time homebuyers to accumulate enough assets and cash to get a mortgage loan and make a down payment. Getting a mortgage can be daunting and keep people from being able to make an offer on a house,” he said.
Demand for Bonds Supporting Homeownership
HFAs that want to raise capital for these programs benefit from the fact that the market for green, social, sustainability and sustainability-linked bonds in the last two years has proved resilient despite geopolitical uncertainty, inflation and rising interest rates. The issuance of these bonds grew 6% in 2023 to more than $980 billion, from $925 billion in 2022 (though short of the record $1.08 trillion issuance in 2021).6
Sustainability-focused retail and institutional investors, such as large mutual funds and bond funds, have shown interest in high-quality bonds with social designations, Proulx said. Depending on the offering, interest on social bonds that support homebuying may be exempt from federal income and state income tax, which further draws investors. “There is demand for helping increase homeownership for those that need it—and improving environmental practices within homeownership and multifamily rentals—for many investors that have aspects of their portfolios that they’re looking to fill,” he said.
Morgan is helping broaden the investor pool for HFAs’ homeownership bonds. In February 2024, European investors purchased an HFA’s social bonds for the first time, an issuance that Morgan lead managed for the Illinois Housing Development Authority (IHDA), Proulx said. “We are always looking for ways to showcase the social benefits of our HFA clients’ programs, bring in a wider audience of investors, and to lower the costs of funds for these programs,” he said.
