The vast revamp of financial regulation in 2010 was created to protect the poor from the predatory lenders who drove the economy into financial turmoil. But groups such as Habitat for Humanity say that some new regulations crafted by the Consumer Financial Protection Bureau will inadvertently stop nonprofits from helping some of those same low-income families get into homes.
Habitat for Humanity may be best known for its blue-jeaned squads of volunteers who descend on vacant lots with hammers and drills to construct homes for awaiting, often tearful, families. But a large portion of its work also involves helping to secure interest-free loans for those low-income families. Habitat doesn’t donate homes.
Charlotte, N.C., Habitat President Frank Spencer testified before Congress on Tuesday that the nonprofit wouldn’t be able to assist as many families if it’s held to new standards under the Dodd-Frank Act. The new rule, known as the “qualified mortgage” rule, already has cost the Charlotte chapter up to $50,000 in labor and technology resources over the past 12 months, he said.
“To put that in perspective, we can let you sponsor a house for $70,000, so that’s one house we didn’t build,” Spencer told committee members.
The Republican-led House of Representatives financial institutions subcommittee is reviewing the impacts of the rule. Implemented Jan. 10, it’s intended to ensure that borrowers can afford their loans over the long term. It prohibits some risky practices and requires greater analysis of the incomes, assets, savings and debts of prospective borrowers.
The qualified-mortgage rule aims to have a floor for underwriting standards because those mortgages will be placed in a secondary market – and anyone who buys those mortgage bonds wants assurances that the underwriting is solid. Before the crisis, the underwriting standards had become unhinged.
Spencer was part of a congressional panel that included representatives from community banks, mortgage bankers and credit union industries. They testified on the harms that they say the new rule will cause.
Michael Calhoun, the president of the North Carolina-based Center for Responsible Lending, testified in support of the qualified-mortgage rule.
Many Republicans have problems with the Consumer Financial Protection Bureau that have been extended to the new rule. Lawmakers say the regulation hampers the ability of community lenders to tailor specific products to needy, low-income borrowers.
Many Democrats, though, say the rule is necessary to protect against another financial meltdown. Several Democrats agreed during the hearing that changes to the rule are needed, but they urged more time to study the impacts.
Some advocates worry that significant revisions, including legislation, could be exploited and could then sabotage the protections the law means to impose.
“The qualified-mortgage definition may need some tweaking – no doubt about that – going forward,” said Rep. Stephen Lynch, D-Mass. “I think the folks in this committee would do well to tone down the doomsday talk and rhetoric about the rule that is going to do enormous good for homebuyers.”
Habitat for Humanity is, in essence, a mortgage lender. It helps families secure more than 4,000 interest-free loans annually. Because many of those low-income families are considered subprime borrowers, their loans are subject to the higher-scrutiny guidelines that Habitat says is costing the nonprofit time and money that should be spent on getting families into homes.
Rep. Mark Meadows, R-N.C., introduced a bill this fall that would exempt nonprofit lenders who provide interest-free loans or below-market-interest-rate loans. Meadows estimates that it would cost Habitat $4.5 million in North Carolina and $100 million nationally each year to comply.
“It’s an unintended consequence of a law pulling in a group that really is all about helping people,” he said. “They don’t make money on their loans.”
The bill has bipartisan support. Co-sponsors include Democratic Reps. Patrick Murphy of Florida and G.K. Butterfield of North Carolina and Republican Reps. Richard Hudson of North Carolina and Mick Mulvaney of South Carolina.
Meadows said he’d sought to tailor the legislation narrowly enough so that for-profit financial institutions couldn’t exploit the proposal. But some housing advocates still worry.
Calhoun supports exemptions for groups such as Habitat for Humanity but he said any revisions to the rule should be done administratively through the Consumer Financial Protection Bureau, not through legislation that could be exploited later or used as a vehicle for broader changes.