In the latest move in a crazy quilt of state-by-state regulations affecting Habitat for Humanity, the affordable housing nonprofit, West Virginia's Division of Financial Institutions is imposing some new ground rules on how it provides mortgages.
Starting in September, Habitat affiliates in the Mountain State must demonstrate progress in getting paid staff engaged in mortgage origination trained and licensed. The requirement, which has drawn sharp opposition from some Habitat for Humanity officials, is part of a broader debate around the country on how much regulation the popular nonprofit should face.
According to Michelle Connor, executive director of Almost Heaven Habitat for Humanity - one of the two largest Habitat affiliates in West Virginia - nine of the nonprofit's state chapters face three options by the September deadline: have paid on-staff mortgage originators complete the licensing process, subcontract mortgage originating to a third party, or stop brokering loans - a basic component of the Habitat business model.
Founded in Americus, GA in 1976, Habitat for Humanity has built more than one-half million homes worldwide. Qualified home buyers must perform "sweat equity" by building their own or a neighbor's home and are also required to participate in homeownership and budget counseling. Loans carry zero percent interest and monthly payments are returned to Habitat to help build more homes. Disabled veterans, the homeless and single parents are among the lower-income clients served by Habitat.
Regulation runs the gamut
The regulation of Habitat staff conducting mortgage transactions now takes three basic forms across the U.S. - the continuation of preexisting requirements in place during the early stages of the housing crisis, new requirements imposed after the crisis reared its head, and outright exemption from such oversight.
Robert Lamont, general counsel for the West Virginia Department of Banking, acknowledges that the Mountain State is in the minority in not providing a licensing exemption to Habitat. But he sees benefits to both Habitat staff and clients in imposing the new regulation.
"They (paid staff ) have to have a license if they're going to broker loans," Lamont said. "The Division consensus opinion was that it would be useful to have those folks get some education ... about mortgage lending and then pass the test so that they document that they're knowledgeable about the in's and out's of mortgage lending."
Further, Lamont said the Division of Banking has eased the financial burden on Habitat chapters by waiving both the license fee and surety bond requirements associated with the mandate.
At least two other states, Louisiana and Michigan, had earlier imposed a variety of mortgage licensing requirements on Habitat as the housing crisis spawned calls for additional regulation.
In Louisiana, Habitat has spent less than $10,000 complying with the state's mandate by obtaining originating and brokering licenses, purchasing software, paying state fees, meeting a bonding requirement and fingerprinting staff and board officers. Sue Chenevert, executive director of the state Habitat office, said the creation of a statewide mortgage clearinghouse took some pressure off local affiliates and "actually wasn't as costly as we thought it would be."
A similar clearinghouse has been created in Michigan. Habitat for Humanity Michigan Fund originates and services mortgage loans for affiliates for a below-market monthly fee, said Sandra Pearson, the fund's president and CEO.
"Although change is difficult, we are complying with state and federal regulations and laws and operating as a sound nonprofit, which is very attractive to potential funders," Pearson said in a statement. Habitat for Humanity Michigan Fund is currently originating mortgages for 65 affiliates and servicing 1,160 loans valued at $49 million for 46 affiliates.
Vermont is also reviewing Habitat mortgage activities. The Green Mountain State is using a "compensation or gain" analysis to determine whether Habitat's employees or volunteers need a license. In response to a Habitat chapter's inquiry, Vermont's Department of Banking ruled in April that the individuals conducting mortgage origination were volunteers who did not receive any compensation or gain and therefore did not need a license. The department intends to render its analysis on a rolling basis.
Still other states have exempted Habitat staff from the reach of mortgage licensing that might have been triggered by 2008's SAFE Act, which told states to bring licensing laws into compliance with federal requirements.
This past May, for example, Mississippi's governor signed into law a bill removing Habitat from the reach of broker-certification requirements. Trey Jones, the nonprofit's state director, said failure to exempt could have forced all but three of Mississippi's 47 Habitat affiliates out of business.
Hesitancy in West Virginia
Habitat's leadership in the Mountain State remains puzzled about the need for new regulation.
"Our families do not need traditional bank underwriting," said Connor of Almost Heaven Habitat, who estimates the licensing requirement will cost her chapter several thousand dollars and even more if an originator departs and a new staff member is licensed. And she believes it will be difficult to raise funds to cover the costs of regulation. "What our donors want to fund are sticks, bricks and mortar," she asserted.
Because the Habitat model does not allow for regulatory costs to be passed on to home buyers, Connor is bracing for cutbacks. "It'll be a couple less repair jobs per year, it might be carrying over a house from one year to the next," she thinks.
Shawn Means, executive director of the Kanawha/Putnam chapter of Habitat, isn't taking chances. He and another staff member will undergo mortgage origination licensing as a "fail-safe." Like Connor, he questions what toll it might take on Habitat's social mission and fundraising.
One man's thought from ground zero
For Habitat, "ground zero" in the housing crisis may be Greater Cleveland, where unemployment hit a high of 9.2 percent at mid-2009 and where predatory commercial lenders, house flippers and a declining population have decimated neighborhoods.
In January, the local Habitat chapter said it would institute foreclosure actions on 25 properties if long-delinquent homeowners did not develop plans to make good on mortgage payments. About one-half dozen cases have started moving through court.
"People have to understand the expectations of what homeownership means," said John Habat, executive director of Greater Cleveland Habitat for Humanity in an interview with the Plain Dealer. Asked for this article whether staff licensing for mortgage origination might be helpful in conjunction with Habitat's preexisting budget and homeownership counseling, Habat responded quickly.
"It's not a matter of having the right regulations in place, it's a matter of having the accountabilities in place working with these families," Habat said, adding that historically, only a "small minority" of people need remedial action. New regulation, like the kind rolled out elsewhere in the country, "would have a harmful effect on our ability to do these homes as cheaply as possible for the families we're serving," Habat offered.
Neil Cotiaux is a freelance journalist who specializes in housing, community development, and public policy issues.
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