GAO: CED Loans Face Securitization Barriers

Efforts to securitize community economic development loans face numerous barriers, including nonstandardization and lack of performance information, according to a General Accounting Office report."Ultimately, securitization may not be a significant alternative for CED lenders until the volume of loans available for securitization is better known and the lenders are convinced of the benefits of participating," the GAO report says. The GAO researcher found that CED lenders generally don't have information on the cost of originating and servicing the loans that are designed to spur economic development in distressed areas. In addition, they generally make below-market-rate loans. The GAO report also discusses incentives, like credit enhancements, that the government might consider to overcome the barriers to securitization. But the GAO researchers do not make any recommendations. "Such incentives might require federal funds, and the extent to which this might result in sufficient loan volume to make securitization viable is not clear," the GAO report says.