New 'Ability-to-Repay' rules will not apply due to program's servicing, history
Posted on June 26, 2013
BOSTON, June 26, 2013 --- The Massachusetts Housing Partnership's SoftSecond Loan Program - which is switching from a two-loan structure to one loan and will be renamed ONE Mortgage - has earned an exemption from new federal mortgage rules, a decision that will help the program appeal to more lenders and ensure that safe, secure, fixed-rate mortgage credit will continue to be available to lower-income homebuyers.
The Consumer Financial Protection Bureau (CFPB), a new federal agency responsible for enforcing new financial regulations, announced recently that certain Housing Finance Agencies (HFAs), nonprofits and community-based lenders would be exempt from new "Ability-to-Repay" rules.
"Part of what (CFPB) is saying is that programs like SoftSecond and ONE Mortgage have built in discipline and quality control," said Clark Ziegler, MHP's executive director. "Our public mission is to help borrowers and make sure they are successful. So to put lenders through the wringer of extra liability when they support and participate in what we do doesn't make sense, especially since our lenders are a crucial aspect of the program's ability to successfully help first-time homebuyers and strengthen neighborhoods by increasing owner-occupied homeownership."
Standards, loan history, mission considered
The "Ability-to-Repay" rules allow a borrower to sue a bank if he or she alleges that the lender knowingly made a loan the borrower could not repay. By exempting programs like SoftSecond and ONE, lenders who make these loans won't have to worry about this additional liability.
In explaining its decision, the CFPB cited SoftSecond as an example of the type of program that should be exempt due to its strict underwriting, strong loan servicing and mandatory counseling, even though the program's graduated payment structure in the first years of the loan is considered non-traditional and does not fit the definition of a "Qualified Mortgage."
The CFPB wrote that applying "Ability-to-Repay" rules to successful programs would be "an unsustainable burden" to lenders and could result in "significantly reducing access to credit" for lower-income borrowers.
SoftSecond was created in 1990 after a Federal Reserve study that found a pattern of racial bias in mortgage lending in Boston. In response, representatives from MHP, the Massachusetts Affordable Housing Alliance (MAHA), the Massachusetts Bankers Association, the City of Boston and others began meeting to find potential solutions. The result was SoftSecond, a program designed to address common obstacles facing lower-income, first-time homebuyers. After 20 years, SoftSecond has yielded over $2.6 billion in private financing and more than 17,000 successful homeowners.
Key changes in ONE Mortgage
The program is now transforming from a two-mortgage structure to the ONE Mortgage Program. Participating ONE Mortgage lenders will originate a single, fixed-rate 97 percent first mortgage with no private mortgage insurance (PMI) required. As with SoftSecond, MHP will use public funds as a pooled loan loss reserve in lieu of PMI. Qualified borrowers may also receive a payment subsidy in the initial years of the loan. The new structure is aimed at making the program simpler for borrowers and lenders and it makes the program more amenable to the secondary market.
"What we're trying to do is something that's more reflective of the current state of banking regulations, but in a way that is just as good in terms of interest rates and payments for the borrower," said Ziegler.
To be eligible for ONE Mortgage, one must be a first-time homebuyer with an income at or below area median income. In 2013, the average household income of homebuyers who used the program was $50,000.
If you are a first-time homebuyer interested in hearing more about ONE, or if you're a lender interested in offering the ONE Mortgage Program, contact Homeownership Director Gina Govoni at 617-330-9944 x293 or ggovoni@mhp.net, or Program Manager Kelly Maloy at 617-330-9944 x241 or kmaloy@mhp.net.