Boston - The two largest barriers to homeownership are having enough money for a down payment and being able to qualify for a mortgage. We believe the Calvert Mortgage Access fund offers an opportunity to invest in a way that helps underserved communities overcome these obstacles, which can expand access to homeownership, while generating competitive returns for investors.
How Calvert Mortgage Access works
About 20% of our portfolio is invested in state housing finance agency bonds that provide down payment assistance in the form of second liens, many of which are forgivable or have a 0% rate. We like owning the government-guaranteed Ginnie Mae first liens that help underserved borrowers purchase a home but can present little or no credit risk for bondholders.
Approximately 10% of our portfolio is loans from borrowers who do not qualify for a traditional government mortgage program. Some of these bonds are issued by community development financial institutions (CDFIs), some are for small family farms through Farmer Mac and others are for manufactured housing.
Our portfolio also includes loans to the multigenerational households that are prevalent among immigrant and minority families, where there are four or five people with well-paying jobs. Together they may earn more than enough to pay off a mortgage. But since a typical mortgage application is limited to two incomes, they can fall short of qualifying for traditional loans.
Every bond in our portfolio seeks to plug one of these gaps in a safe way for investors, either via government guarantee, which approximately 75% of our holdings have, or extensive credit analysis in the case of nontraditional income sources.
Calvert's analysis methodology
Every issuer goes through a full Calvert analyst review. We score each individual bond for social impact on a 1 to 5 scale, with 5s having exceptional and 1s negative impact. We aim to own only 4s and 5s.
We prioritize working closely with servicers who have strong foreclosure avoidance policies. We never want to put somebody in a home that they cannot afford but even with the most stringent underwriting life events will sometimes cause a homeowner to fall behind on their payments. The servicers that we work most closely with have been able to bring more than 75% of delinquent borrowers back to current status, either through forbearance or loan modification programs.
Positive impact from mortgage-backed securities
One notable way the Calvert Mortgage Access fund has helped foster positive change is through the first custom agency mortgage pool focused on occupation. We worked with one of the largest purchase mortgage originators in U.S. to create a pool of mortgages with borrowers who are teachers and nurses — a targeted effort to give back to the people who help our communities thrive.
We calculate that the extra quarter-point we pay the originator to find these loans translates into a mortgage rate roughly 7 bps lower. Over the life of an average loan, that can add up to $5,500 lifetime savings to the borrower.
Bottom line: Wealth inequality stemming from the homeownership gap in the U.S. is a critical ESG issue. Calvert's Mortgage Access team looks for opportunities that can close this chasm and also benefit investors.
