BLOG VIEW: I was recently going through some of my older articles, and I came across a news item that I wrote 20 years ago for the American Bankers Association's monthly magazine about a secondary marketing experiment called Sugar Mae. Unless you were working in Vermont mortgage banking in the early 1990s, you probably never heard of this – and that's a shame, since it was an interesting idea that never quite clicked. Two decades later, poor Sugar Mae deserves a brief tribute.
Sugar Mae was officially called the Green Mountain Mortgage Market. Despite its name, it was not a government-sponsored enterprise – it was a program run by the Vermont Housing Finance Agency (VHFA) to package rural home loans into the secondary market. And in case you are wondering about its nickname, it was based on Vermont's sweetly famous maple syrup.
Back around 1990, lenders in Vermont's rural areas were having no fun (let alone luck) securitizing their residential loans. Many properties fell afoul of underwriting standards – disqualifications included having properties that either ran on wood-burning heat, or were located on unpaved roads or were home to self-employed loggers. Needless to say, many of these loans went straight to the lender's portfolio.
According to Patricia A. Crady, director of homeownership programs at the VHFA, the agency purchased these loans from the state's banks and swapped them for Fannie Mae mortgage-backed securities. ‘Banks agreed to use the proceeds of the sale to invest in affordable housing,’ she says, adding that the program had VHFA selling the securities created from the loans to several pension funds in Vermont.
It was an interesting idea, to be certain, but it ultimately proved to be a solution without a problem. ‘While I believe the initial intent was to do multiple transactions, there was only enough interest for one transaction,’ says Crady. ‘The interest rates on most of the loans were above market, and some banks wanted a higher premium than the pension funds were willing to pay.’
Twenty years later, of course, things are very different. For starters, the rural housing market is in a stronger position than it was in 1990 – it did not experience the severity of the subprime-induced turmoil that wrecked the urban and suburban markets.
Furthermore, the federal government's view of secondary marketing opportunities for rural housing agency has evolved – Farmer Mac, which was created in 1989, helped address many of the anomalies that kept rural housing loans out of the secondary market, while the Farm Credit System has ratcheted up its efforts in this area through its unique configuration as both a lender and government-sponsored enterprise.
Today, however, housing finance agencies are taking the initiative in keeping the regional mortgage banking markets vibrant, and two recent developments attracted a lot of attention. Last week, the California Housing Finance Agency announced that it will develop initiatives to use nearly $700 million in new federal funding to help borrowers who are struggling with their mortgage payments. Last month, the Wisconsin Housing and Economic Development Authority re-entered the affordable home loan market – it was forced to stop lending in October 2008 – with its own version of Fannie Mae's Affordable Advantage product.
And VHFA is doing quite well, with a recent reminder of its Sugar Mae-era business planning: Last month, Fitch Ratings assigned an ‘A+’ rating to VHFA's 1990 single-family housing bond resolution; that housing bond, of course, came out the same year Sugar Mae was put forward. Fitch has labeled its rating outlook for the VFHA housing bond as ‘stable’ and it praised the agency for a ‘successful history of administering its single-family programs.’
If Sugar Mae wasn't the right idea for its time, then at least it showed willingness to address thorny local issues in a creative manner. On that point, it deserves to be remembered.
– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b]
[i] (Please address all comments regarding this opinion column to hallp@sme-online.com.)[/i]
