Sen. Franken Fights to Protect Habitat for Humanity
Senator urges Obama Administration to safeguard non-profits’ ability to help low-income families
Today U.S. Sen. Al Franken (D-Minn.) urged the Obama Administration to tread carefully when creating mortgage rules in order to protect Habitat for Humanity and other non-profits' ability to help Minnesota's low-income families.
Sen. Franken wrote a letter to the head of the Consumer Financial Protection Board to make sure forthcoming consumer protection rules do not unintentionally hurt non-profit mortgage lenders.
"Habitat for Humanity and other non-profits make homeownership possible for low-income families in Minnesota every year," said Sen. Franken. "Families helped by these non-profits have also maintained low foreclosure rates. I'm urging the Obama administration to make sure new rules to protect consumers do not unintentionally jeopardize non-profit mortgage lenders' ability to help families."
In 2010, new protections for consumers were created to prevent banks from preying on families with bad mortgage deals. However, these protections must be implemented very thoughtfully so that they do not have the unintended consequence of forcing non-profits that have a history of helping low-income families access credit and achieve homeownership to start turning new families away.
Habitat for Humanity has provided funding and resources totaling over $55 million and has built 1,800 homes in Minnesota since 1997. Sen. Franken has been an active advocate for the non-profit and in 2010 joined former President Jimmy Carter to help build a home in Minneapolis.
The bipartisan letter was also signed by Sens. Jeff Merkley (D-Ore.), Johnny Isakson (R-Ga.), Mark Begich (D-Alaska), Saxby Chambliss (R-Ga.), Mike Johanns (R-Neb.), Tom Udall (D-N.M.), and Ron Wyden (D-Ore.). The full text of the letter can be found below.
Dear Director Cordray:
We write to express our concern about the impact that an overly narrowly qualified mortgage rule could have on the important work of self-help nonprofit housing organizations. Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) requires the Consumer Financial Protection Bureau (CFPB) to develop underwriting criteria based on a consumer's "ability to re-pay." Loans that meet minimum standards established by the CFPB will be designated as qualified mortgages (QM), and will be afforded some degree of legal protection.
As the CFPB finalizes its QM and ability to re-pay regulations, we urge you to ensure that loans originated by non-profit housing organizations like Habitat for Humanity that employ a "self-help model" are anticipated within the QM definition. A QM definition that unintentionally excludes the work of these nonprofit organizations would hinder their ability to serve low-income families and frustrate the intent of the Dodd-Frank Act.
The intent of the Dodd-Frank Act's ability to re-pay provision was to ensure that consumers were not taken advantage of by loan terms that they could not repay, and to exclude those loans that could pose a predatory risk to consumers. Self-help nonprofits such as Habitat that focus exclusively on providing affordable loans that ensure that families build equity in their home and are not charged exorbitant fees are exactly the type of loans that we know the CFPB wants to encourage.
Habitat for Humanity and other self-help housing nonprofits operate in a vastly different manner than a typical mortgage lender, one which allows them to reach a key underserved sector of the mortgage market. While their borrowers typically cannot qualify for a conventional mortgage loan, these nonprofits succeed by focusing on close working relationships, financial education, and true affordability. Rather than approving a borrower based solely on documents that detail objective characteristics such as debt-to-income ratios, such organizations select borrowers after a much more intensive process of working with them face-to-face over many months, through interactions that include interviews to select future homeowners, financial counseling sessions, and on-site construction work to build the homes that will be sold to these families. It is these personal interactions that allow the nonprofit sponsors to be confident that their borrowers have the determination and the ability to repay their loans.
In addition, the families who buy homes through these self-help organizations end up owning a home in which they have significant equity from day one, because the sales price reflects substantial reductions based on donated materials and labor, as well as the lack of a markup for profit. These generous dynamics ensure that the consumers are not being taken advantage of as they work to purchase their first home.
The unique approach to lending practiced by these self-help organizations has resulted in very low foreclosure rates, even at the peak of the housing crisis. Such carefully considered loans should be anticipated and encouraged within the QM and ability to re-pay regulations.
Thank you in advance for your consideration as you finalize these important rules.
