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Sen. Franken urges Obama administration to proceed with caution on QM rules to protect non-profit lenders

Al Franken

Al Franken

Sen. Al Franken (D-Minn.) urged the White House on Thursday to proceed with caution on mortgage rules designed to protect the ability of non-profit organizations to assist low-income families in Minnesota.

“Habitat for Humanity and other non-profits make homeownership possible for low-income families in Minnesota every year,” Franken said in a bipartisan letter to the CFPB. “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, Congress passed the Dodd-Frank Act, which aimed to reduce risk and instabilities in the U.S. financial system following the recent financial crisis. Title XIV of Dodd-Frank requires the CFPB to develop underwriting standards based on a consumer’s “ability to repay.” Loans that meet the CFPB standards will be designated as qualified mortgages and will be given some legal protection.

“As the CFPB finalizes its QM and ability to repay 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,” Franken said. “A QM definition that unintentionally excludes the work of these non-profit organizations would hinder their ability to serve low-income families and frustrate the intent of the Dodd-Frank Act.”

Franken also said that non-profit mortgage operations are significantly different from typical mortgage operations. While non-profit mortgage borrowers are usually unable to qualify for a conventional home loan, non-profits “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 organization 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,” Franken said. “It is these personal interactions that allow the non-profit sponsors to be confident that their borrowers have the determination and the ability to repay their loans.”

The letter was also signed by Sens. Mark Begich (D-Alaska), Saxby Chambliss (R-Ga.), Johnny Isakson (R-Ga.), Mike Johanns (R-Neb.), Jeff Merkley (D-Ore.), Tom Udall (D-N.M.) and Ron Wyden (D-Ore.).

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