Bringing Equity to Homeownership

May 31, 2024

With homeownership rates on the decline and the wealth gap in the U.S. widening, state housing agencies are raising capital from private markets to provide down payment assistance and attractive mortgage rates to first-time homebuyers.

Key Takeaways

  • Owning a home is an important way to build personal and generational wealth.
  • However, homeownership rates in the U.S. are declining, with high-income households accumulating more housing wealth.
  • To help increase homeownership rates for lower-income first-time home buyers, particularly in underserved communities, U.S. state housing finance agencies are issuing bonds to raise money for programs that include assistance with down payments.
  • Morgan Stanley helps these agencies raise capital by connecting them to retail and institutional investors interested in purchasing high-quality bonds that can offer financial returns while helping to make homeownership more equitable.

For most U.S. homeowners, their house is their most valuable asset and an important way to build personal and generational wealth.1 Right now, however, homeownership rates are declining, with the greatest losses among middle-income households.2 At the same time the distribution of housing wealth is worsening, with low-, moderate- and middle-income households sharing less of the pie—and making the wealth gap worse.3 In today’s high-interest-rate environment, it has become even more expensive to make monthly payments on a home, creating a challenging environment for first-time homebuyers to find an affordable mortgage and accumulate enough money for a down payment.


To ensure that households in underserved communities have access to homeownership and the opportunity to build wealth by owning a home, state housing finance agency (HFA) programs provide affordable mortgages and generous downpayment assistance money funded through bonds underwritten by Morgan Stanley. “Part of the lens around equity has been to develop financing strategies that address economic insecurity and the growing wealth gap, which enable people who have lower incomes to participate in the wealth generative power of homeownership,” said Grace Chionuma, Managing Director and Head of Community Development and Strategic Community Engagement in Public Finance at Morgan Stanley.


Because HFA programs differ from state to state, Morgan Stanley recently hosted a conference for 13 HFAs, to help these agencies share their initiatives, best practices and insights with each other and increase access to homeownership for low-, moderate- and middle-income homebuyers and underserved communities. One of the HFAs at the conference was the Massachusetts Housing Finance Agency (MassHousing). From 2019 through 2022, MassHousing’s Home Ownership Programs provided a total of $3.3 billion across 21,000 loans, with $836 million funded through Social Bonds proceeds.4 97% of the MassHousing mortgages financed with Social Bonds served households below 100% of area median income, with 56% of the loans provided to households earning below 80% of area median income. 42% of the mortgages were made to minority households. As noted by S&P Global, MassHousing’s single-family program mortgage loans cut down on the risk of gentrification and neighborhoods that are segregated by income, and MassHousing aims to spur economic growth in historically underinvested communities.5


“HFA homeownership programs come in different shapes and sizes, and HFAs are always interested in what other states are doing,” said Geoff Proulx, Managing Director and Head of Affordable Housing in Public Finance at Morgan Stanley. “It’s becoming harder and harder for families to find affordable homes and to set aside enough money for down payments. State HFAs make a difference by providing affordable loans and down payment assistance while also providing homebuyer education and counseling designed to ensure people don’t run into trouble and can keep their properties to generate wealth over time.”


Helping with Down Payments

HFAs use a variety of strategies to help low-, moderate- and middle-income families purchase homes and have been recently augmenting down payment programs to provide larger amounts and more flexible terms. A significant impediment to first-time homebuyers is accumulating enough money for the down payment necessary to get a mortgage. Proulx underscored the importance of support during the first step of the homebuying journey: “It’s difficult for many first-time homebuyers to accumulate enough assets and cash to get a mortgage loan and make a down payment. Getting a mortgage can be daunting and keep people from being able to make an offer on a house,” he said.


Demand for Bonds Supporting Homeownership

HFAs that want to raise capital for these programs benefit from the fact that the market for green, social, sustainability and sustainability-linked bonds in the last two years has proved resilient despite geopolitical uncertainty, inflation and rising interest rates. The issuance of these bonds grew 6% in 2023 to more than $980 billion, from $925 billion in 2022 (though short of the record $1.08 trillion issuance in 2021).6


Sustainability-focused retail and institutional investors, such as large mutual funds and bond funds, have shown interest in high-quality bonds with social designations, Proulx said. Depending on the offering, interest on social bonds that support homebuying may be exempt from federal income and state income tax, which further draws investors. “There is demand for helping increase homeownership for those that need it—and improving environmental practices within homeownership and multifamily rentals—for many investors that have aspects of their portfolios that they’re looking to fill,” he said.


Morgan Stanley is helping broaden the investor pool for HFAs’ homeownership bonds. In February 2024, European investors purchased an HFA’s social bonds for the first time, an issuance that Morgan Stanley lead managed for the Illinois Housing Development Authority (IHDA), Proulx said. “We are always looking for ways to showcase the social benefits of our HFA clients’ programs, bring in a wider audience of investors, and to lower the costs of funds for these programs,” he said.