Transforming Student Debt to Home Equity Act of 2022

To direct the Secretary of Housing and Urban Development and the Director of the Federal Housing Finance Agency to develop a program to provide assistance to creditworthy borrowers with Federal student debt in purchasing certain foreclosed homes owned by the Federal Government, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and local land banks, and for other purposes. 1. Short title This Act may be cited as the Transforming Student Debt to Home Equity Act of 2022 2. Findings Congress finds the following: (1) In the third quarter of 2021, over 15,185,000 homes remain vacant in the United States. (2) These extended vacancies depress neighborhood property values and create a downward spiral in neighborhood stability in already troubled communities. (3) Meanwhile, due to climbing expenses of higher education, the total Federal student debt owed equals $1,750,000,000,000. (4) More than 44,700,000 Americans have at least one outstanding student loan. (5) Student loan repayments are forcing millions of young families to delay purchasing their first home, as they cannot afford to save for a downpayment or qualify for a mortgage while also paying off student debt. (6) Data from the Federal Reserve shows that non-Hispanic White households have a median net worth of $181,440, while Black households have a median net worth of $20,730 and Hispanic households have $36,180; providing innovative financial products will allow the United States to reduce the racial wealth gap and to ensure equitable access to housing and economic mobility. (7) The COVID–19 pandemic has exacerbated the racial wealth gap by increasing unemployment within already disadvantaged communities and further reducing access to homeownership and increasing the burden of student debt. (8) According to a report from the Joint Center for Housing Studies of Harvard University, Black and Hispanic households are more likely to have their household income decline and to face hardship in paying rent and other monthly housing costs due to the COVID–19 pandemic. (9) It is imperative to create a demonstration program to design financial pathways to, where possible, systematically convert some student debt streams into equity streams through negotiation of mortgages; otherwise housing purchases will continue to be sluggish among first-time home buyers and thousands more Americans will enter their midyears saddled with student loan debt never having had the opportunity to accumulate equity. (10) It is in the interest of the Federal Government to use the resources at its disposal, including both housing properties held in trust and student debt obligations, to put reverse pressure on these downward trends. (11) By arranging financing that recalculates terms, debt-to-income ratios, mortgage interest rates, and other factors, short-term student debt could transition into longer-term home ownership. (12) The goal is to connect creditworthy Federal student debt holders with housing properties for sale and held by the Federal Government and local land banks. (13) Over time, participants can help restore neighborhoods, transform their debt to equity, and stabilize secured property values locally and on the Federal ledger by maintaining and investing in a home mortgage. 3. Program to expand access to mortgages to eligible creditworthy home buyers with federal student loan debt (a) Establishment From amounts appropriated pursuant to subsection (g), the Secretary of Housing and Urban Development and the Director of the Federal Housing Finance Agency shall establish and carry out a pilot demonstration program to— (1) provide assistance to eligible applicants in purchasing eligible properties; and (2) subsequently analyze the results of the provision of such assistance. (b) Consultation In establishing and carrying out the program pursuant to subsection (a), the Secretary and the Director shall consult with— (1) the Director of the Consumer Financial Protection Bureau; (2) the Secretary of Agriculture; (3) the Secretary of Veterans Affairs; (4) the Secretary of Education; and (5) the Secretary of the Treasury. (c) Eligible applicants To be eligible for the program established pursuant to subsection (a), an applicant— (1) shall have an outstanding balance of principal or interest owing on a Federal loan made, insured, or guaranteed under title IV of the Higher Education Act of 1965 ( 20 U.S.C. 1070 et seq. (2) shall have an area median income at or below 120 percent; (3) may not be subject to a judgment secured through litigation with respect to such a loan under title IV of the Higher Education Act of 1965 ( 20 U.S.C. 1070 et seq. 20 U.S.C. 1095a (A) such a loan shall be in repayment status as determined under section 428(b)(7)(A) of such Act ( 20 U.S.C. 1078(b)(7)(A) (B) such a loan shall be in a grace period preceding repayment; (4) may not have owned a home during the 3-year period immediately before the applicant purchases an eligible property with assistance provided under this section; (5) shall complete a program of counseling with respect to the responsibilities and financial management involved in homeownership that is approved by the Secretary; (6) shall be creditworthy, as determined by the Secretary and the Director; (7) shall agree to use an eligible property purchased with assistance provided under this section as the applicant’s primary residence for not less than the 3-year period beginning on the date of such purchase; and (8) shall be employed and earning sufficient income to repay a mortgage loan, as determined by the Secretary and the Director for the purposes of this program. (d) Types of assistance (1) In general A program established under this section may provide for any one or more of the following options: (A) A discount on the appraised value of an eligible property. (B) Flexibility in underwriting standards related to the purchase of eligible properties for mortgages insured under title II of the National Housing Act ( 12 U.S.C. 1707 et seq. (C) The development of new mortgage products specifically targeted to eligible applicants. (D) Downpayment and private mortgage assistance to eligible applicants. (E) Pre-purchase counseling including related credit and financial coaching to eligible applicants. (F) Provision of a low- or no-interest mortgage rate. (G) Any other assistance that the Secretary and Director jointly deem appropriate. (2) Repayment integration The Secretary shall establish a program that will integrate repayment of loans described in subsection (c)(1) into a mortgage repayment schedule to allow an eligible applicant to accumulate equity in the eligible property. The Secretary shall use actuarial data and risk assessments to collateralize the mortgage provided through Federal funds. (3) Collaboration In providing assistance described under paragraph (1), the Secretary and the Director may collaborate with— (A) community banks having less than $10,000,000,000 in total assets; (B) credit unions (as defined in section 101 of the Federal Credit Union Act); (C) local fair housing organizations; and (D) local land banks. (e) Geographical diversity In selecting eligible applicants to receive assistance under this section, the Secretary and the Director shall, to the extent practicable, consider the location of the eligible property to be purchased by the eligible applicant, including whether the eligible property is located in a rural or urban area, to ensure geographic diversity of such eligible properties. (f) Reports (1) Interim report Not later than 180 days after the date of the enactment of this section, the Secretary and the Director shall submit to Congress an interim report describing the type of assistance the Secretary and the Director shall provide under the program established under this section. (2) Final report Not later than 3 years after the date of the enactment of this section, the Secretary and the Director shall submit to Congress a final report that— (A) evaluates the impact of the program carried out under this section and describes any findings; (B) identifies other types of assistance the Secretary and the Director may offer; and (C) includes any recommendations the Secretary and Director may have for improving the program. (g) Definitions In this section: (1) Director The term Director (2) Secretary The term Secretary (3) Eligible property The term eligible property (A) that is safe and habitable, as defined by the Secretary and the Director; (B) the occupancy of which, as determined by the Secretary and the Director, will promote community revitalization; and (C) that— (i) was previously subject to a mortgage loan insured by the Federal Housing Administration under title II of the National Housing Act ( 12 U.S.C. 1707 et seq. (ii) is a real estate owned property of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; (iii) is owned by a local land bank; (iv) is owned by the Department of Agriculture; or (v) is owned by the Department of Veterans Affairs. (4) Local land bank The term local land bank (A) a governmental or nongovernmental nonprofit entity established, at least in part, to assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and encouraging re-use or redevelopment of urban property; or (B) such other governmental or nongovernmental entity as the Secretary and the Director may determine appropriate. (h) Authorization of appropriations There are authorized to be appropriated such sums as necessary to carry out this section for fiscal years 2023, 2024, and 2025.

Summary: Transforming Student Debt to Home Equity Act of 2022 This bill requires the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency to jointly establish and implement a pilot demonstration program to provide, to eligible applicants with federal student loan debt, assistance in purchasing eligible properties. Specifically, the program may provide for (1) discounts on the appraised value of eligible properties, (2) flexibility in certain underwriting standards, (3) the development of new mortgage products specifically targeted to eligible applicants, and (4) other appropriate assistance. The program must provide for the development of a program that uses actuarial information to determine how the repayment of federal student loans may be integrated into a mortgage repayment schedule to allow eligible applicants to accumulate home equity. An eligible property is a property (1) that is designed as a dwelling for occupancy by one to four families; (2) that is safe and habitable; (3) the occupancy of which will promote community revitalization; and (4) that is owned by HUD, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), a local land bank, the Department of Agriculture, or the Department of Veterans Affairs.