Why Is Habitat for Humanity Pushing for the Same Things Wall St. Badly Wants?
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It’s hard enough to regulate Wall Street’s activities with the usual band of well-paid lobbyists and lawyers attacking every provision. But imagine what would happen if organizations purporting to represent the poor and disenfranchised swarmed Capitol Hill and demanded deregulation.
Last week saw two such incidents, both focused on the Consumer Financial Protection Bureau’s new mortgage rules, based on the simple idea that lenders should only offer mortgages to borrowers who can afford the terms. The rule sets standards for “qualified mortgages,” excluding risky products like “interest only” loans (where the monthly payment only covers the accrued interest) or loans with excessive upfront costs. Additionally, lenders must judge that the borrower has the ability to repay, based on income and other monthly bills.
Lenders can still make riskier loans, but they would be on the hook for a lawsuit if the borrower defaulted. Qualified mortgages get a safe harbor, both for the lender and whoever they might sell the loan to on the secondary mortgage market. The basic idea is to prevent a glut of dangerous mortgages in the marketplace, like the ones that collapsed after the housing bubble and led to the financial crisis.
The rules went into effect Jan. 10. The sky has not fallen and people are still getting loans, but mortgage bankers and their allies in Washington have been screaming about how the rules will inhibit lending, despite the fact that over 87 percent of all mortgages originated in 2012 would have met the qualified mortgage standard, and the other mortgages aren’t even banned (it’s more that the banks don’t want nonqualified mortgages on their books, and if the loans are that toxic, maybe they shouldn’t be sold in the first place).
Sadly, some unlikely voices joined the Wall Street chorus in January. Representatives from Habitat for Humanity, which builds and repairs houses with volunteer labor for poor families all over the world, testified to the House Financial Services Committee that the new rules unfairly burden them. Habitat doesn’t give away homes, but outfits them with no-interest, affordable mortgages. Because they work with borrowers who would be considered subprime, under the new rules their loans trigger additional scrutiny, which Habitat believes creates significant compliance hurdles.
CFPB recognized the Habitat issue early on and exempted nonprofit organizations that write under 200 loans a year from the qualified mortgage rules. But because Habitat adds a second mortgage as a safety measure for their clients, some of their affiliates may go above that 200-loan limit. By one estimate, 99 percent of all Habitat affiliates would find themselves within the exemption. But Habitat wants 100 percent blanket coverage, and doesn’t mind loudly suggesting that in congressional hearings that then get amplified by House Republicans with designs on eliminating the qualified mortgage rules altogether. “Lenders are trying to ride on the coattails of these nonprofit organizations and their technical concerns about the scope of the exceptions,” said Michael Calhoun of the Center for Responsible Lending, who testified at the same hearing in support of the qualified mortgage rules.
Another group agitating for their own exemption is NACA, the Neighborhood Assistance Corporation of America. You may know them from their “ Save the Dream” events all over the country. NACA signs up subprime borrowers as members and uses their leverage to get banks to work with them on refinancing (some would say they intimidate banks, but I’m pro-bank intimidation so that’s fine). Their membership costs $50 a month, which is folded into the mortgage payment, and their primary mortgage product includes an “interest rate buy-down.” Under this program, if borrowers pay 1 percent of the mortgage amount upfront (known as 1 point), they reduce their interest rate by .25 percent, saving money over the life of the loan.