Impact Muni Bonds | August 29, 2023

Wisconsin agency issues $185 million social bond for affordable homeownership

Liana Lan
Guest Author

Liana Lan

Editor’s note: ImpactAlpha has partnered with HIP Investor to highlight upcoming bond issues with social and/or environmental significance. Disclaimer: Nothing in this post or on shall constitute an offer to sell or solicitation of an offer to buy bonds.

  • CUSIP bond identifier: 97689QSP2
  • Issuer: Wisconsin Housing and Economic Development Authority
  • Impact entity rated by HIP: Wisconsin Housing & Economic Development Authority (Social bond)
  • Muni sector: Housing
  • Closing date: August 24, 2023
  • Bond amount: $185 million
  • Coupon: 4.9%
  • HIP Impact Rating: 67.9% (on a 100 point scale) = “net positive”
  • Opportunity Zones: 120 zones covering 433,697 residents (Wisconsin’s 5.9 million residents)

Wisconsin social bond for housing

The Wisconsin Housing and Economic Development Authority (WHEDA) issued a $185 million Home Ownership Revenue Social bond this month to acquire mortgage-backed securities for eligible low- and moderate-income households pursuing homeownership.

The bonds are designed to support WHEDA’s efforts of providing access to financing for homeownership in order to increase permanent housing, protect the middle class, and reduce racial wealth gaps in Wisconsin.

The WHEDA home ownership revenue bonds are designated as social bonds consistent with the International Capital Markets Association Social Bond Principles because of their focus on affordable housing, access to essential services, socioeconomic advancement, and economic empowerment.

Addressing homeownership inequality

WHEDA is trying to address Wisconsin’s increasing need for affordable housing finance. Since 1972, WHEDA has issued over $12.5 billion bonds to invest in affordable housing and economic development, financed more than 87,300 affordable rental units, and helped more than 138,300 families purchase a home.

Achieving fair access to affordable housing is vital in Wisconsin, a state where historical redlining and financial crises have led to unequal access to and treatment of people of color. According to the 2023 Snapshot of Race and Home Buying in America, 17% of Black renter households in Wisconsin can afford to buy the typical home, higher than the nationwide average of 9% for Black renters.

Indeed, the gap in homeownership rates between white and non-white communities in Wisconsin is widening. In 2019, the Black-white homeownership gap was 47 percentage points  and Hispanic-white homeownership gap was 31 percentage points.

People of color also experience higher mortgage loan denial rates due to factors like income, credit, and debt.

WHEDA’s Home Ownership Mortgage Loan Program plays a significant role in bridging these disparities and fostering racial equality by offering equitable mortgage opportunities and support during financial distress.

One means with which WHEDA tackles homeownership barriers is through its Down-payment Assistance (DPA) Loans, part of its single-family programs. Eligible borrowers can receive a reduced interest rate when buying a home in certain rural counties in Wisconsin. During the past year, 62.3% of borrowers and first-time home buyers in Wisconsin have received the DPA Loans that can cover 4.5% on average of the home’s purchase price.

WHEDA does not increase interest rates to fund DPA, which sets it apart from other Housing Finance Agencies.

Ripple effects

The WHEDA home ownership revenue bonds are aligned with the goals of the Wisconsin Opportunity Act, or WOA, which aims to reduce or eradicate poverty and enhance economic wellbeing in the state.

More than 10% of Wisconsin’s population lived below the poverty line in 2021; there were more than 17,000 children and youth experiencing homelessness across the state.

Moreover, the weight of housing costs bears heavily: more than 300,000 individuals and 160,000 households spend more than 50% of their income on housing.

Homeownership is a vehicle for building wealth, financial stability, and economic opportunity that can transcend generations. Owning a home results in more predictable housing costs over time and can increase financial stability.

Ownership can also reduce disruptions associated with rent instability and changes to a rental property that are out of a family’s control.

HIP impact analysis

WHEDA’s $185 million Housing Ownership Revenue Bonds have earned an overall HIP rating of 67.9%.

HIP Investor quantitatively evaluates Housing Agency muni-bonds based on real-world results creating and supporting low-income access to housing. HIP’s Impact rating is based on 25 data-driven metrics across 3826 housing agencies and entities nationwide. HIP impact metrics determine the impact in five key pillars: health, wealth, earth, equality, and trust, providing a deeper understanding of an issuer’s overall impact and how it contributes to positive change in the world.

The breakdown of WHEDA’s bond rating is as follows: a Health pillar rating of 60.4%, a Wealth pillar rating of 69.1%, Earth pillar rating of 77.4%, an Equality pillar rating of 65.7%, and a Trust pillar rating of 45.3%.

In addition, the $185 million worth of WHEDA social bonds are aligned with four of the 17 UN Sustainable Development Goals:

  • SDG 1 seeking No Poverty, which affordable housing serves.
  • SDG 8 pursuing Decent Work and Economic Growth, potentially building generational wealth in families and communities.
  • SDG 10 seeking Reduced Inequalities, as many lower-income families are also people of color, women, and single parents.
  • SDG 11 vision of Sustainable Cities and Communities, which need affordable housing, transportation, and access to health care.

HIP rates WHEDA “net positive” four of these goals. Owner-occupied housing, which can build wealth over time, is a metric measured by HIP and incorporated into the Overall and SDG Ratings.

Liana Lan is an ESG impact investing analyst at HIP Investor Ratings.

HIP Investor Inc. is a state-registered investment adviser in several jurisdictions, and HIP Investor Ratings LLC is an impact-ratings firm evaluating impact and ESG on 123,000 municipal entities, 250,000 muni-bond issuances, and 12,000 corporates for equities and bonds. HIP Impact Ratings are for your information and education – and are not intended to be investment recommendations. Past performance is not indicative of future results. All investments are risky and could lose value. Please consult your investment professionals to evaluate if any investment is appropriate for you, your goals, and your risk-return-impact profile.