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Collaborative Loan Fund Seeking Investors for Second Mortgage Funding Pool

Asset ClassRural, Commercial, Consumer Mortgage, Consumer, Single-Family Housing
GeographyArizona, Colorado, Mississippi, New Mexico
Financing Typecapital debt financing
Interest Areas
Equity Investment
Loan Guarantee
Mission Related Investment

Six non-profit homeownership organizations located in the Southwest and South (all of whom are certified CDFIs or emerging CDFIs) have formed a mortgage collaborative and are seeking up to $5 million in debt capital to fund its second mortgage funding pool.  The project is a pilot to demonstrate the viability of this concept with the hopes that similar structures can be used to expand the overall capacity of the CDFI Mortgage Lending sector.

The organizations combine homebuyer preparation and coaching with specially designed lending products to help clients overcome their challenges. When the clients are ready, the collaborative members provide a conventional first mortgage with a minimal borrower down payment and a subordinate amortizing loan that is 10%-20% of the home value, enough to eliminate the need for mortgage insurance on the first mortgage, thereby making the mortgage more affordable.

Proposed Loan Fund Structure

Debt Capital

The $5 million debt capital will be used to fund the second mortgages in the loan pool. The debt will have a 30-year amortization with a 15-year term. Pre-payments on mortgages would be used to pay down the debt capital more quickly than a straight 30- year schedule, therefore, reducing the amount of the balloon payment at the end of 15 years.

Rate of Return

The rate of return to investors is negotiable.

Mortgage Originator Level Equity

Collaborative Members will provide equity to cover the first losses from loans that it originates.

Loan Fund Level Pooled Equity

Equity will be provided and will be used to absorb losses after any individual originator’s equity has been depleted. This pooled equity provides additional loss protection to the guarantor and the provider of the debt capital.

Loan Fund Guarantee

With the two levels of equity and the potential third party guarantee, the provider of the debt capital would have significant excess collateral coverage. The true power of the Collaborative Loan Fund is to expand the universe of available capital that will help small community organizations reach a meaningful scale.

For more information and details on this opportunity, click on the contact button to email the sponsoring organization.