The struggle to establish a vibrant secondary market for community development loans

Securitization of loans and their sale to long-term investors has revolutionized many areas of finance: real estate, autos, consumer credit. But despite many efforts, it has not taken hold in community development financing. The obstacles to creating a secondary market for community development loans are similar to obstacles other markets faced: lack of data, standardization of documents and loan process, and loan volume. Other markets have managed to overcome these obstacles. Yet despite recent advances, such as the Community Reinvestment Fund’s issuance of rated securities in November 2004 and May 2006, the goal of a vibrant secondary market for community development loans seems as tantalizingly close today as it did nearly a decade ago, when a community development consultant wrote in Community Investments that “piece by piece, a secondary market is taking shape.” This development was in the “not-too-distant future. And, with the trend toward reduced public support, the sooner the better.”