The article below documents the creation of the first social impact bond, a mortgage security backed by home mortgage loans exclusively from minority-owned institutions. Fannie Mae, GE Capital Mortgage Corp., Creative Investment Research, and an institutional investor collaborated to create this mortgage security.
The mortgage security involved private investors providing upfront capital to Creative Investment Research for this specific social intervention, which aimed to open the secondary mortgage market to minority-owned institutions, allowing them to offer more mortgage loans to their target customer base. The investment returns were derived from the underlying mortgage loans, which were tied to the positive social outcome.
We note that the graphic above, showing the individual mortgage loans in an MBS pool, was one of the first to use geocoding to display social metrics of an investment, in this case, mapping loan location to area income. This was another significant innovation.
Social Impact Bonds have a focus on social outcomes and the involvement of private investors providing upfront capital for a specific social intervention. The bond showcased an innovative method for addressing social issues, in this case, minority homeownership, through the creation of new types of financial investment vehicles, an approach pioneered by William Michael Cunningham and Creative Investment Research.
We've noted an increasing number of claims regarding the "first" of these vehicles and approach. For example, "RAND Europe was commissioned by the UK Ministry of Justice to evaluate the world's first Social Impact Bond (SIB), a bond created in 2010." These claims fall under the heading of cultural misappropriation, identical to common assertions regarding the development of other Black innovations and cultural assets, like Rock and Roll music.
Security backed exclusively by minority loans. American Banker. Friday, December 2, 1994. By Edward KulkoskyFannie Mae, GE Capital Mortgage Corp., an investment advisory firm, and an institutional investor have joined forces to issue what is said to be the first mortgage security backed by loans exclusively from minority-owned institutions.
Said William Michael Cunningham, president of the advisory company, Creative Investment Research: "This opens the secondary mortgage market to minority-owned financial institutions and the customers they serve. The more access these institutions have to the secondary market, the more mortgage loans they can offer to minority and low-to-moderate-income homebuyers."
Mr. Cunningham's firm says it conceived of the security and identified the institutional investor.
At GE Capital, a spokesman said GE acted as an aggregator of the loans, a role it often plays in securitizations. But this particular group of loans was unusual because all come from minority banks and thrifts.
Ray Sims, president of Capital's Residential Express division, said, "It's reassuring that investors are seeking to purchase pools secured by targeted investments."
The lenders were identified as Brownsville National Bank, Brownsville, Tex., Hispanic-owned; City National Bank of New Jersey, Newark, black-owned; Citizens Savings and Trust Co., Nashville, black-owned; Seaway National Bank, Chicago, black-owned; and Union National Bank of Texas, Laredo, Asian-owned.
Creative Investment says the investor is a pension fund that funded the research required to determine the feasibility of the MBS pool. Creative also is planning to manage an investment portfolio that would hold such securities.