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Banks and CDFIs push for mission‑oriented collateral pilots and standardized valuation to expand affordable housing lending
Summary
FHLB officials and CDFI leaders at an FHFA symposium urged pilots and FHFA guidance to better recognize LIHTC and other mission collateral, reduce haircuts, and improve secondary‑market liquidity so CDFIs can scale affordable housing finance.
CDFIs and Federal Home Loan Bank officials used a mission‑oriented collateral panel at the FHFA symposium to press for practical fixes to how the FHLB system values and accepts affordable‑housing assets.
CDFI speakers urged the banks and FHFA to treat long‑term loans on low‑income housing tax credit (LIHTC) properties as high‑quality collateral. Panelists cited multi‑decade performance data and low cumulative foreclosure rates for LIHTC loans and argued that current haircuts and conservative mark‑to‑market approaches often overstate liquidation risk, discouraging CDFIs from pledging those assets.
Federal Home Loan Bank credit officers acknowledged LIHTC performance but said statutory and supervisory constraints require banks to account for possible liquidation costs and market volatility. Several banks noted they add haircuts where secondary‑market liquidity is limited and said FHFA guidance and shared price‑discovery data would allow more calibrated haircuts.
Panelists proposed practical steps: pooled AMA (Acquired Member Asset) programs to create a more liquid secondary market for affordable‑housing loans; coordinated pilots across multiple FHLBs to test valuation and haircut reductions; use of retained earnings or voluntary first‑loss funds to support pilot structures; and standardizing ARRIS or other third‑party reporting to reduce information asymmetry.
FHFA staff said a Request for Information on mission‑oriented collateral parameters is forthcoming and noted the agency is exploring supervisory frameworks and pilot guidance. Banks and CDFIs agreed on two operational objectives: run targeted pilots that produce measurable performance and liquidity data, and create cross‑bank forums to share results and standardize treatment if pilots succeed.
Panelists also pressed for alternatives to liquidation in rare CDFI insolvencies, including transition arrangements with other mission lenders or servicers that preserve loans and protect mission outcomes while limiting losses to banks.
