Qualified Prospective Borrowers Experiencing Significant Difficulties in Securing Mortgages for Homes in Lower Price Bracket
Casey: Homeownership is a Sound Way to Promote Revitalization, Rebuild Communities and Decrease Crime
PHILADELPHIA, PA – Today, U.S. Senator Bob Casey (D-PA) called upon the U.S. Consumer Financial Protection Bureau (CFPB) to take steps to allow qualified borrowers to secure mortgages in communities like Kensington where property values are low. Increased homeownership helps to revitalize communities and decrease crime, but qualified people are having difficulty financing homes.
“Qualified people can’t finance homes in many Pennsylvania communities, which prevents economic recovery and makes reducing crime difficult,” Senator Casey said. “People who are qualified should have access to the benefits of homeownership, and I encourage the CFPB to move forward in its efforts to make sure that federal housing policy encourages economic recovery.”
Qualified borrowers seeking to purchase properties priced below $75,000 have encountered significant challenges in securing mortgages in areas with low property values. This puts neighborhoods like Kensington at a disadvantage because it restricts homeownership, a pathway out of poverty. According to the most recent data available, nearly half of the homes purchased in Philadelphia were purchased for less than $60,000. Rural and urban areas across the state face the same challenges in communities with low property values.
On a tour of Kensington with community advocate Jamie Moffett, Senator Casey released a letter written to the CFPB highlighting the impact that the increased availability of mortgages could have on revitalization efforts in neighborhoods like Kensington and urged the agency to take steps to alleviate the problem.
The full text of Senator Casey’s letter to the CFPB can be seen below.
The Honorable Richard Cordray
Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552
Dear Mr. Cordray:
As the Consumer Financial Protection Bureau (CFPB) completes its work defining the parameters of a “qualified mortgage,” I ask that you pay special attention to the effect this rule will have on access to small mortgages.
It is my understanding that it can be difficult or impossible to secure a mortgage for amounts that are less than $50,000-$75,000. Data on housing prices shows that this affects a significant number of Pennsylvanians in both rural and urban areas. According to the American Housing Survey, a joint project of the Census Bureau and the Department of Housing and Urban Development, homes with purchase prices of under $60,000 make up a significant portion of housing in Pennsylvania’s two largest cities, Philadelphia and Pittsburgh. The most recent data available (2009 for Philadelphia and 2004 for Pittsburgh) shows that 48 percent of homes in Philadelphia and 56 percent of homes in Pittsburgh were purchased for less than $60,000. Low property values are also common in rural Pennsylvania. According to the Federal Financial Institutions Examination Council, in 2007, the median loan for home purchases was under $100,000 in the four most rural counties in Pennsylvania, and in two of those counties the median loan was under $50,000.
This dynamic has a negative impact on residents of the Commonwealth. Recently, I heard from a constituent who is working to revitalize the Kensington neighborhood of Philadelphia. The area faces numerous challenges, including cyclical poverty and high crime rates. Homeownership provides a pathway out of poverty and to a safer neighborhood for all residents. Unfortunately, it is nearly impossible to secure a mortgage for Kensington residents. As a result, residents often rent homes for substantially more than the cost of a mortgage payment on the same property. I understand the reasons for this dynamic are complicated, ranging from our current credit environment to the costs to banks to write these loans; however, I ask your agency to please keep these issues in mind as it writes the qualified mortgage rule.
I would note that Congress acknowledged this issue in the Dodd-Frank Act, which specifically provides for separate rules for smaller loans that “consider the potential impact of such rules on rural areas and other areas where home values are lower.” I understand the limitation on points and fees as a percentage of the total loan in a qualified mortgage could make it even more difficult for buyers to obtain a small dollar mortgage. Limiting the points and fees is an important consumer protection measure, and will help ensure that banks focus on the long-term performance of the loan rather than on short-term profits from fees; nevertheless, the rule must avoid the unintended consequence of making it unnecessarily difficult for homebuyers in areas with low home values to obtain a mortgage. I encourage you to consider the effect of the limitation on points and fees, as well as what components will be considered under that limitation. It is crucial that the final rule strike a balance that will ensure the availability of these loans without creating an undue burden on borrowers.
The qualified mortgage rule is an important part of the work the CFPB and other federal regulators are doing to improve consumer protection and ensure a safer and sounder mortgage market. As the CFPB continues its work on the qualified mortgage rule, I encourage you to give full consideration to impact of the rule on affordable housing, particularly in areas with low home values.
Thank you for your consideration of my views.
Sincerely,
Robert P. Casey, Jr.
United States Senator
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