Case Study #1
Mortgage Loan Sale & Securitization
THE CHALLENGE | A CDFI wanted to monetize mortgage loans it had purchased from developers of affordable homes for lower-income homeowners but was not aware of how offering various loan structures could optimize the outcome (i.e., maximizing the proceeds of a transaction).
WHAT WE DID | Krambo designed a transaction that allowed prospective investors to choose from three different financing structures, choosing that best suited to their needs. Those structures included the sale of mortgage loans, securitization of mortgage loans, or a particular type of loan having mortgage loans as collateral.
THE OUTCOME | Krambo was able to place several million dollars of mortgage loans to a variety of banks. These transactions were accomplished at discount rates well below market, in substantial part because each investor could choose a financing structure that specifically meet its needs. The CDFI was able to utilize the resulting proceeds from the sale of existing loans to purchase even more loans from affordable housing developers/lenders, thus multiplying the social impact of the capital it had raised.
Case Study #2
Forward Commitment
THE CHALLENGE | A nonprofit lender and developer of affordable homes had been monetizing its mortgage loans with a financial institution at a relatively favorable rate. When interest rates began to rise in early 2023, that financial institution substantially raised its interest rate. This put the nonprofit in a bind: Either the resulting mortgage loans would no longer be affordable for its prospective homeowners, or the nonprofit would have to substantially lower the amount of the first mortgage loan and take back a subordinate mortgage loan on which it would not receive payments for 30 years.
WHAT WE DID | Krambo arranged 36-month forward commitments with four different institutional investors for $9 million to be taken down at the rate of approximately $3 million per year. The interest rate on the resulting mortgage loans was fixed for the ensuing 36 months at about half the rate charged by the previous financial institution.
THE OUTCOME | With this forward commitment now in hand, the nonprofit was able to build homes and know exactly what the interest rate would be on each related mortgage loan and the related monthly payment for its partner homeowners. Thus, the nonprofit and its homeowners are no longer subject to unexpected changes in the market.
Case Study #3
Equity Equivalent Note
THE CHALLENGE | A West Coast CDFI that lends to affordable housing entities needed capital to enhance its equity base, increase its lending resources, and preserve cash flow for several years.
WHAT WE DID | Krambo structured and placed $2.4 million of Equity Equivalent Notes (EQ2 Notes) with two banks. These fully subordinate notes bore relatively nominal interest and made for interest-only payments for the initial term of five years, extendable to 25 years at the same rate of interest.
THE OUTCOME | This interest-only feature helped the CDFI preserve cash flow during its early growth. The CDFI was able to generate more income by lending the proceeds of the EQ2 Note at a higher rate, and this increase in net assets helped it attract additional capital.