Kaptur Introduces Legislation to Transform Student Debt into Home Equity

June 27, 2019
Press Release

Washington, D.C. — Congresswoman Marcy Kaptur (OH-09) has introduced the Transform Student Debt to Home Equity Act of 2019, legislation that directs the Department of Housing and Urban Development (HUD) and Federal Housing Finance Agency (FHFA) to establish a pilot program to connect creditworthy federal student debt holders with housing properties for sale but held by the federal government and landbanks. The pilot program would be used as a national model for enabling college graduates to restructure their student loan debt into an opportunity to purchase habitable foreclosed and vacant homes across the country.

 

“With an estimated $1.6 trillion in student loan debt held across the country, it’s no wonder homeownership rates among young Americans have plummeted,” said Rep. Kaptur. “Fortunately, there is a proven financial tool already in widespread use that could facilitate a solution: the home mortgage. This common lending tool has the power to incorporate student loan repayments into a means for building equity and economic success through a home mortgage.”

 

“My bill directs HUD and FHFA to establish a pilot program that connects creditworthy federal student debt holders with eligible houses currently owned by the federal government. By arranging financing that recalculates terms, debt-to-income ratios, interest rates, community reinvestment thresholds and other factors, short-term student debt could transform into longer-term home mortgage ownership opportunity.

 

“The bill offers an innovative solution to transform debt into a sound investment for the future. I urge my colleagues to support this legislation to help unleash millions of Americans from crushing student loan debt and empower them and our country for future success.”

 

About the Transform Student Debt to Equity Act

  • The Transform Student Debt to Home Equity Act directs the Department of Housing and Urban Development (HUD) and Federal Housing Finance Agency (FHFA) to establish a pilot demonstration that connects creditworthy federal student debt holders with housing properties for sale but held by the federal government or landbanks.
  • The Transform Student Debt to Home Equity Act directs HUD and FHFA to create a pilot program that can be used as a national model for enabling college graduates to restructure their student debt into an opportunity to purchase habitable foreclosed and vacant homes across the country.

 

Objectives

  • Transform liabilities into assets by bringing more property currently managed by federal agencies and landbanks into the mortgage market.
  • Create first-time home ownership opportunities for federal student loan debt holders.
  • Stimulate community development and home equity creation. 

 

Motivation

  • Student loans are often seen as a way to build educational and career goals. However, they also have long lasting implications as student debt often disqualifies first-time home purchasers from qualifying for a mortgage.
  • Total student loan borrowers: 44.2 million.
  • Total outstanding student loan debt: $1.5 trillion.
  • A large portion of educational loans is federal, and so is the number of properties held in foreclosure.
    • Fannie Mae REO/ foreclosure inventory: 26,485 properties. 
    • Freddie Mac REO/foreclosure inventory: 7,100 properties.
    • HUD REO/foreclosure inventory: 6,1276 properties approx.

Solution

  • Expand mortgage market for student loan borrowers using federal vacant foreclosed homes.
    • Rather than maintaining vacant properties held by the federal government in distress and waiting for the market to recover, discount them. Business prefers restructuring and refinancing rather than bankruptcy. Government can use this approach to manage its defaulted property assets and the student loan portfolio. Eventually, program participants would help strengthen neighborhoods, and buoy property values locally and on the federal ledger simply by maintaining and investing in a home mortgage.

 

Bill text for the legislation can be found here

 

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kaptur.house.gov