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Investing Perspective published on December 2, 2019

Affordable Housing Gains From Public, Private Financing

The first sale of No Place Like Home bonds during the week of November 18 is among the latest creative financing strategies to address affordable housing challenges in America. The new bonds also highlight the positive effects public and private enterprises have on the challenge of providing affordable housing across America.

The No Place Like Home program gives California $2 billion in bond issuing authority to provide cities and counties funding to develop permanent supportive housing for people living with severe mental illness and suffering from homelessness. Taxable bonds in the amount of $500 million issued through the program came to market on November 19, 2019.1

The bonds proved popular. The issuance was oversubscribed; there were more interested buyers than bonds. No Place Like Home bonds are financed with income tax revenue from a tax approved in 2004 on personal income over $1 million.

Municipal Bonds Finance Affordable Housing

No Place Like Home bonds share similar objectives with municipal bonds issued by state housing finance authorities (HFAs) to increase the availability of affordable housing for low- and middle-income households. Affordable housing long has played a pivotal role in the municipal bond market’s housing sector.

HFAs use their authority to issue bonds to finance affordable homeownership opportunities and rental housing development and preservation. In many cases, the bonds are exempt from federal, state and local income taxes, so investors are willing to accept a lower rate of return, which HFAs pass along to their borrowers in the form of lower loan interest rates.

According to the National Council of State Housing Agencies, state HFAs during the last 50 years provided more than $450 billion in financing for the purchase, development, and rehabilitation of more than 7 million affordable homes and rental apartments serving low- and middle-income households. HFAs in all 50 states, Puerto Rico and the U.S. Virgin Islands participate in the efforts.2

Bank Lending Supports Affordable Housing

Municipal bonds and public authorities are joined in their efforts to address affordable housing by other financing sources. For example, U.S. government-guaranteed mortgages executed through the banking system, support homeownership on a massive scale. More specific to affordable housing, in 1992, legislation established an affordable housing loan purchase mandate for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) that was regulated by the Department of Housing and Urban Development, creating a market for bank loans. Furthermore, bank compliance with the Community Reinvestment Act (CRA) of 1977 directs billions of dollars every year to affordable housing in America.

The CRA encourages FDIC-insured depository institutions like commercial banks to proactively address the credit needs of low- and moderate-income neighborhoods in their assessment areas; essentially the areas where their main offices, branches and deposit-taking ATMs are located.

Industry regulators use four criteria to assess and rate how well each bank fulfills its CRA obligations to its communities: 1) outstanding, 2) satisfactory, 3) need to improve or 4) substantial noncompliance. CRA ratings play an important role when regulators evaluate applications for bank mergers, charters, acquisitions, branch openings, and deposit facilities. A poor rating can limit a bank’s ability to grow and pursue its mission.

Overall, in 2018 alone, the top 25 affordable-housing lenders delivered $35 billion in loans to affordable housing developments with formal income restrictions, including permanent and construction loans. The 2018 total was up from $30 billion in 2017 and $27 billion in 2016.3

As part of our environmental, social and governance (ESG) analysis of corporate bond issuers in the banking sector, Breckinridge assesses each company’s financial inclusion based on its CRA Rating. Of the 28 banks under research coverage, 43 percent have earned the rating outstanding, 54 percent have the satisfactory rating, and one has a needs-to-improve rating.4 By including CRA Ratings into our assessment, we are reviewing a bank not only for its financial merit but also its potential impact on communities.

Banks play a vital role in the economy and thoughtful government-sponsored, community-based lending can be powerful. The arrival of No Place Like Home bonds to the market reminds investors that they can have positive effects on substantial challenges that confront society – like affordable housing and homelessness – through their investments.


[1] “New California state credit will fund homes for mentally ill people,” The Bond Buyer, November 15, 2019.

[2] “State Housing Finance Agencies: At the Center of the Affordable Housing System,” September 7, 2018.

[3] “Despite Challenges, Lenders Upbeat for 2019.” Affordable Housing Finance, March 4, 2019.

[4] Breckinridge Capital Advisors, as of November 1, 2019. The CRA Rating is for the largest bank entity by asset size. Large bank holding companies have multiple banking subsidiaries and CRA Ratings may vary across state-chartered banks. Foreign bank CRA Ratings are for a U.S. banking subsidiary. A high CRA Rating does not mean the bond will produce gains or positive performance or be less volatile than those with a lower CRA Rating. CRA Ratings are subject to change at any time.

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