Change Lending, a prominent mortgage lender, has recently lost its special status under a government program that aimed to increase homeownership among Black, Hispanic, and low-income borrowers. The company had been granted leeway in mortgage-writing to serve a wider range of borrowers, including wealthier individuals who sought nonqualified mortgages with unique features like interest-only periods and balloon payments.
However, a recent investigation has raised concerns about whether Change Lending has been fulfilling its commitment to assist disadvantaged borrowers as intended by the U.S. Treasury. As a result, the company no longer appears on the list of businesses classified as Community Development Financial Institutions (CDFIs), according to the CDFI Fund’s online roster, which administers the program.
The decision to decertify Change Lending as a CDFI was made in the past few days, as confirmed by a source familiar with the process. The specific reasons behind this loss of status remain unknown, particularly considering that the company had held its CDFI status since 2018.
Change Lending’s CDFI Certification in Jeopardy
Change Lending, a prominent financial institution, faces the risk of losing its Community Development Financial Institution (CDFI) certification. This certification requires the company to allocate at least 60% of its lending towards specific groups, including Hispanic, Black, or low-income borrowers, or those in designated low-income neighborhoods.
However, a recent analysis has revealed that Change Lending struggled to meet industry standards in terms of increasing lending to Black borrowers. Additionally, only a fraction of its loans in key markets were considered affordable for individuals with low incomes.
When questioned about these concerns, Change Lending claimed to surpass the required lending targets for disadvantaged borrowers. Nevertheless, the company has not responded to inquiries regarding its apparent loss of CDFI status.
Upon reaching out to the CDFI Fund for clarification, a spokesperson directed attention to the updated online CDFI roster. Despite this uncertainty surrounding Change Lending’s status, its parent company, Change Company CDFI, remains listed as a certified business on the CDFI Fund’s roster. Interestingly, this venture-capital fund designation raises questions about the implications for Change’s lending operations.
In response to this situation, Change Lending has made changes to its websites. The most noticeable alteration is the removal of CDFI logos and the self-proclaimed title, “America’s CDFI.” This title was initially adopted due to the company’s significant lending volume compared to other program participants. These participants typically consist of non-profits or smaller community-based organizations.
Furthermore, term sheets outlining the details of their Community Mortgage product have also disappeared from Change’s websites. Notably, this mortgage option did not require borrowers to provide employment-verification records, banking activity details, or other standard documentation typically requested by lenders.
As the future of Change Lending’s CDFI certification hangs in the balance, it will be interesting to observe how the company navigates these challenges and adapts its lending practices accordingly.
Exemption from Documentation Requirements: The Advantage for Change
Legislation enacted post the 2008-09 global financial crisis introduced documentation requirements, commonly referred to as “ability-to-repay” rules. However, Community Development Financial Institutions (CDFIs) are exempt from these rules.
Notably, Change has previously marketed this exemption as an “unfair advantage” to mortgage brokers in trade publications and on social media platforms. It has boasted about being “the home of the Community Mortgage,” which is recognized as the industry’s most innovative product.
It is worth mentioning that approximately 90% of the $3 billion in mortgages bundled by Change into asset-backed securities for sale to investors since the beginning of 2022 have utilized this exemption. This information is based on calculations derived from data published by DBRS Morningstar.
Should Change lose this exemption, it would face a considerable setback in the highly competitive nonqualified mortgage lender industry, according to Marc Halpern, the CEO of Foundation Mortgage, a Miami-based mortgage bank that also operates in the same market.
Moreover, our analysis of lending records and regulatory filings published in July revealed that wealthy borrowers, such as actor Johnny Depp and NFL legend Tony Gonzalez, were among the key beneficiaries of Change’s lending leeway, which is originally designed to support underserved groups.
Despite the involvement with affluent individuals, Change has insisted that its commitment to underserved borrowers remains unwavering.