Change Lending (Change) is issuing this Fact Sheet to provide its stakeholders and strategic partners information on Change’s business practices and positive social impact. i
TOPIC #1: What borrowers are part of Change’s Target Markets – as certiﬁed by the United States Department of the Treasury’s CDFI Fund?
FACT: The CDFI Fund has approved Change’s Target Market to include the following populations nationwide: (1) Blacks, (2) Hispanic/Latinos, and (3) Low-Income populations; as well as (4) Low-Income areas in speciﬁc geographies. Low-Income populations are speciﬁcally deﬁned based on median family income thresholds for the speciﬁc census tract where the subject property is located. Meanwhile Low-Income areas are also speciﬁcally deﬁned at a census tract level.
TOPIC #2: What Percentage of Change’s Loans Are Made to its Target Markets?
FACT: The CDFI Fund currently mandates that at least 60 percent of loans originated by a certiﬁed CDFI are made to its preapproved Target Markets. Currently, over 70 percent of loans Change originates are Target Market loans.
TOPIC #3: Does Change Allow for the Self-Certiﬁcations of a Borrower’s Race or Ethnicity?
FACT: As required by law, Change allows borrowers to self-identify their gender, race, and ethnicity. Change receives no economic or regulatory beneﬁts due to a borrower’s self-identiﬁcation as a speciﬁc race or ethnicity on their HMDA disclosures. In fact, Change meets all CDFI tests relating to Target Market lending excluding all loans that would rely on the borrower’s self-identiﬁcation of their race or ethnicity.
TOPIC #4: Does Change Have an Incentive for Borrower’s to Self-Identify as Hispanic/Latino?
FACT: Change does not discriminate against any borrowers, but also does not receive economic incentives related to a borrower’s self-identiﬁcation as Hispanic/Latino or any other ethnicity. Change does have some funds that were earmarked by strategic partners to provide further housing opportunities for Black and Low-Income families as well as loans in certain Low-Income communities. However, Change has received no funds that are earmarked for loans to Hispanics/Latinos or any other ethnicity.
Many of Change’s strategic partners who are banks look to Change as a source of loans which may be sold or allocated to them under the Community Reinvestment Act of 1977 (“CRA”), a federal law enacted to encourage depository institutions to meet the credit needs of the communities in which they do business. The CRA is agnostic as to the borrower’s racial or ethnic makeup and looks solely at the income level of the borrower and the community in which they live to determine CRA eligibility.
In 2023, over 60 percent of the loans Change originated were made to Low-Income borrowers. Over 75 percent were to either Low-Income borrowers or borrowers located in Low-Income communities (collectively, LMI Loans). Therefore, 95 percent of loans Change originated to its Target Markets in 2023 were LMI Loans. This focus permits Change’s bank strategic partners to be eligible for CRA credit, and further demonstrates that Change has no incentive to misclassify any applicant or borrower’s ethnicity.
TOPIC #5: Does Change Lend to Non-Minority Borrowers?
FACT: Change makes loans to all homeowners who qualify for one of its loan programs. Change lends to everyone – including Black, Latino, and Low-Income borrowers. Unlike many existing traditional lenders who tailor their loan programs to wealthier borrowers and borrowers who live in high-end neighborhoods, Change does not exclude any qualified borrowers and it operates in areas underserved by many banks and traditional lenders – such as El Paso, Texas and Albuquerque, New Mexico.
TOPIC #6: Has Change ever Received Government Money Due to its Status as a CDFI?
FACT: Change has never taken a dollar of government subsidies, grants, guarantees or other funds based on its status as a CDFI or otherwise. To date, Change has demonstrated the creditworthiness of its Target Market loans and LMI Loans based on a free-market, non-subsidized assessment of their quality, creditworthiness, and historical performance.
TOPIC #7: How has the Secondary Market Treated Change’s Loans.
FACT: Change is an approved seller-servicer to the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and the Government National Mortgage Association. Change is also an approved originator for the Department of Veteran Affairs, Fair Housing Administration, and United States Department of Agriculture. Change also is approved to offer most governmental down-payment assistance programs, including ones offered by the California Housing Finance Agency. Change’s approval for each of these programs is independent of Change’s status as a CDFI.
While Change is certainly proud of the relationships it has built with such prestigious entities, these entities limit the flexibility of the loans Change can offer under their programs. The government/Agency lenders each have pre-determined, uniform underwriting guidelines and only purchase loans meeting their approved lending requirements. Therefore, Change is able to provide Target Market borrowers not served by banks access to these programs, but Change is unable to make common-sense credit decisions when a borrower does not fit the box defined by these government agencies.
For those borrowers who do not fit the box for government/agency loans, Change has developed proprietary lending products tailored to the needs of these non-traditional, prime borrowers in Change’s Target Markets. These proprietary loans serve borrowers who have non-traditional documentation based on the borrower’s job, life experience, immigration history, and other factors. For instance, small business owners, contractors, gig-economy workers, new immigrants, recent students, and others are often unable to qualify for loans from banks although they are prime, credit-worthy borrowers. Change’s proprietary loan programs are each reviewed and approved by its Community Advisory Board to ensure they are fair and responsible.
Change’s proprietary loans have strong credit metrics including average LTVs of 70 percent and FICO scores of 740. Change is an issuer of securities comprised of its proprietary loans and its securities have been awarded a rating of AAA due to the strong history of performance of Change’s proprietary loans. Today, these loans are purchased by banks, insurance companies, asset managers and sold via securitizations.
TOPIC #8: Does Change verify a Borrower is Low-Income?
FACT: Yes. Change verifies a Borrower’s income using the borrower’s federal tax records. Change then employs an automated system which accurately locates the applicable census tract and utilizes the 2016-2020 ACS census data, as provided by the CDFI Fund, to identify the applicable median family income, then multiplies the median family income by 80 percent and adjusts the median family income for family size, as applicable, to determine the Low-Income Threshold (“Threshold”). Once the Threshold has been established, the system compares it against the gross income of the family to identify individuals or families that qualify as Low-Income. Change bases all income determinations for this purpose on the use of federal tax records. The CDFI Fund also permits the approval by other government programs available to Low-Income populations as evidence of Low-Income provided such programs utilize a definition of Low-Income consistent with that of the CDFI Fund.
TOPIC #9: Does Change Verify the Subject Property is in a Low-Income Community?
FACT: Yes. Change employs an automated system that accurately locates the applicable census tract and utilizes the 2016-2020 ACS census data to determine if the census track meets at least one of the Distressed Criteria in 12 C.F.R. § 1085(b)(3)(ii)(D) or is wholly located within an Empowerment Zone or Enterprise Community. All validations are done through automated systems which are periodically audited for accuracy no less than annually. For CRA eligibility, Change follows CRA regulatory guidance and uses a third-party vendor to validate its results relating to the CRA eligibility of the loan.
TOPIC #10: How Does Change Validate its Data?
FACT: Change employs a best-in-class three-lines-of-defense model to ensure the accuracy of its data. Business units have implemented automated systems to reduce or eliminate the potential of inadvertent errors. These systems automate data inputs in real time to ensure all appropriate data is collected by subjecting the loan to hard-stops along the way.
Change’s second line of defense consists of its internal Quality Control team which acts as a liaison for either a third-party QC Firm or a Diligence Vendor to conduct samples of loan files to ensure accuracy with compliance, underwriting, as well as validation of data. Virtually every proprietary loan originated by Change is reviewed by a third-party due diligence firm prior to its sale. The Due Diligence firm will issue a report based on the accuracy of the data compared to the loan file as well as that each loan conforms to the requirements of the loan program and applicable laws and regulations. Lastly, Change has engaged reputable national law firms to review its processes and methodologies and confirm they are consistent with regulatory requirements.
Finally, Internal Audit serves as a third line of defense by conducting an annual review of Change’s systems through independent, third-party audit firms to review a statistically relevant sample of loans, data-point by data-point, and validate that the data in the system matches the information contained on the documents contained in the loans files. The third-party review firm then revalidates Change’s regulatory calculations to ensure the loan is compliant with all regulations and the system is functioning as designed.
TOPIC #11: What methodologies does federal law permit financial institutions to utilize when collecting information related to an applicant’s race, ethnicity, and sex?
FACT: As provided in Regulation C, when collecting data on an applicant’s (or co-applicant’s) ethnicity, race, or sex a financial institution “must ask the applicant [or co-applicant] for this information (but cannot require the applicant to provide it) whether the application is taken in person, by mail, or telephone, or on the internet.” 1
TOPIC #12: Are there any exceptions when a federal law mandates a federal institution to collect information related to an applicant’s race, ethnicity, or sex based on other means?
FACT: As provided in Regulation C, when collecting data on an applicant’s (or co-applicant’s) ethnicity, race, or sex if the applicant or co-applicant does not wish to provide the information and the application is taken in person, the financial institution is mandated to note the information on the basis of visual observation or surname. 2
TOPIC #13: Is it permissible for a financial institution to alter, edit or change how an applicant or co-applicant reports their race or ethnicity under federal law?
FACT: Pursuant to Instruction 8 of Appendix B to Regulation C, a ﬁnancial institution reports the ethnicity and race of the applicant as provided by the applicant (or co-applicant). “[A] ﬁnancial institution should not correct the race or ethnicity as reported by the applicant [or co-applicant], even if the applicant has entered clearly incorrect or inappropriate information.” 3 Change believes that investigating how CDFI borrowers self-identify would have a chilling eﬀect on the willingness of borrowers to complete the HMDA certiﬁcation on gender, race, and ethnicity or on a borrower’s willingness to use CDFI lenders.
TOPIC #14: How should a ﬁnancial institution report an applicant’(s) or co-applicant’(s) race or ethnicity for HMDA purposes when the application is not taken in person and the applicant [or co-applicant] does not wish to provide such information?
FACT: If the applicant (or co-applicant) declines to self-identify their race or ethnicity by checking the “I do not wish to provide this information” box on the application that is taken by mail or on the internet, or declines to provide this information by stating that he or she does not wish to provide this information on an application that is taken by telephone, [Change] must report “information not provided by the applicant in mail, internet, or telephone applications.” 4
TOPIC #15: Are there any distinctions between the data collection and reporting requirements for race and ethnicity under HMDA and the data collection and reporting requirements under the Community Development Financial Institutions Certiﬁcation Methodologies.
FACT: As provided above, HMDA does not permit a ﬁnancial institution to use visual observation or surname to select an ethnicity or race unless the applicant declines to self-identify their race, ethnicity or gender and the application is taken in person. While the CDFI Fund’s Proposed Pre-Approved Target Market Assessment Methodologies does permit the applicant to self-report their race and ethnicity and does allow a ﬁnancing entity to visually assess an applicant’s race and ethnicity if an application was taken in person, the CDFI Fund’s proposal also allows for identiﬁcation of race or ethnicity by a ﬁnancing entity collecting a government-issued photo identiﬁcation and assessing the applicant or co-applicant’s race or ethnicity from the picture on their identiﬁcation. Furthermore, the CDFI Fund’s proposal contains a list of common Hispanic Surnames which the proposal will allow CDFIs to use to determine if an applicant qualiﬁes as OTP-Hispanic. The CDFI Fund has not provided any list of surnames that would disqualify a CDFI from counting a borrower as Hispanic/Latino if the borrower self-identiﬁes as Hispanic/Latino.
Considering the foregoing, Change is able to review driver’s license photos for the purposes of determining if a borrower qualiﬁes using approved Target Market Methodologies for purposes of its CDFI reporting but strictly prohibits altering, changing, or completing a borrower’s self-identiﬁcation of race or ethnicity for HMDA reporting. Therefore, it is possible that a borrower is designated as Hispanic/Latino for HMDA purposes but not for CDFI Target Market purposes.
Change reviews its CDFI Target Market assessments using a best practice three line of defense consisting of: (i) business unit collection; (ii) compliance/QC review; and (iii) Risk and internal audit review. Recognizing the importance of fulﬁlling its mandate to the CDFI Fund, Change has also engaged third-party independent diligence ﬁrms periodically to review all data and corresponding methodologies and calculations utilized in its designation of its Target Markets.
TOPIC #16: Does Change believe someone with a surname believed to be of European or Asian descent may also identify as having an ethnicity of Hispanic/Latino?
FACT: As mandated by federal law, Change allows applicants to self-identify their race, ethnicity, and sex. Change recognizes and appreciates the diversity of Americans is a strength. In fact, as Latin America has been a centuries-old destination for migrants from every continent, people from all races can nonetheless also identify ethnically as Hispanic/Latino. For instance, there are century-old immigration patterns whereby Asians have emigrated to Latin America with their descendants ultimately immigrating to the United States. This results in unique disclosures that include race of Asian and ethnicity of Hispanic/Latino – and even a sub-ethnicity of Mexican from time to time. HMDA allows for the designation of up to 5 races as inter-ethnic and inter-racial parenting can compound the complexity of individual borrower’s lineage. Change recognizes that names and surnames can be very misleading for bi-racial and bi-ethnic Americans who may have parents of split race, ethnicity, and nationality. Change understands that adopted and fostered children have ethnicities that may not be reﬂected in their surnames as well.
TOPIC #17: Does HMDA allow applicants and co-applicants to self-identify as multiple races and ethnicities on the same loan transaction?
FACT: Pursuant to Regulation C, an applicant or co-applicant may select up to ﬁve diﬀerent races concurrently and may even report their ethnicity as both “Hispanic or Latino” and “Not Hispanic or Latino” concurrently. 5
TOPIC #18: What does Federal law recognize as the best way to determine ethnicity?
FACT: Federal laws and statutes generally agree that the best way to determine an individual’s ethnicity is through self-identiﬁcation. While no methodology is perfect, the EEOC has statutorily found that an individual’s ethnicity is based on self-identiﬁcation, and numerous civil rights groups also believe the same for gender. Change does not arbitrate an individual’s self-identiﬁcation, nor does it advise the person how they should self-identify. Change does not require blood tests or other genealogical testing for a borrower to conﬁrm their self-identiﬁcation. Change makes lending decisions independent of a person’s HMDA disclosures and receives no beneﬁt related to how an applicant answers the HMDA questionnaire with respect to their race, ethnicity, or gender. Change supports the purpose of HMDA as it was enacted to ensure Fair Lending and prevent redlining.
Change understands the rich, centuries-long history of migration to Latin America from every continent and believes an individual can identify as Hispanic/Latino regardless of their given name or surname. Change also believes people can have relatives from Eastern Europe and relatives who are Hispanic/Latino. Also, Change believes that people of all races can have a Hispanic/Latino ethnicity and that they can identify with the sub-ethnicity of Mexican – for instance if their family moves to Mexico and they grew up in Mexico. Therefore, Asian, Black, White and other races can have a Mexican sub-ethnicity and Hispanic/Latino ethnicity based on their lived experiences.
TOPIC #19: Does Change believe a home can be aﬀordable even if the borrower’s DTI Ratio is over 28%?
FACT: Yes. The Center for Responsible Lending and National Fair Housing Alliance has stated that “Research has demonstrated the limited predictive value of strict DTI limits as well as its eﬀect of excluding credit-worthy borrowers, disproportionately people of color, from QM loans…”
Change believes that any analysis or proposal that seeks to cap debt-to-income ratios at 28 percent for CDFI borrowers contributes to the structural racism embedded in the ﬁnancial system and would inappropriately exclude credit-worthy borrowers, disproportionately people of color, from homeownership. In fact, it would eliminate the ability of minority and Low-Income borrowers to participate in America’s largest and most popular mortgage programs oﬀered by the Federal Housing Authority (FHA), Fannie Mae, Freddie Mac, Veterans Administration (VA) and United States Department of Agriculture (USDA).
FHA, VA, USDA, Fannie Mae, and Freddie Mac all have fair and responsible programs which allow debt-to-income ratios of over 50 percent to qualify as “qualiﬁed mortgages” – by assessing the borrower’s creditworthiness wholistically. In fact, several of these programs allow both front-end and back-end debt-to-income ratios of approximately 50 percent. Change is unaware of any lender in the country who caps debt-to-income ratios for all borrowers at 28 percent as such a policy for CDFIs would have disproportionately negative impacts on minority borrowers and a similar eﬀect as the red-lining that occurred during the Jim Crow era. This is particularly true for Qualiﬁed Mortgages (QM mortgages). QM mortgage rules allow higher debt-to-income ratios for loans with certain other features and designate such loans as presumptively non-predatory.
Change provides its borrowers access to all government and Agency programs without overlays. Therefore, Change’s borrowers can qualify for homes using QM mortgages that are oﬀered by the U.S. Government with debt-to-income ratios up to 54.9%. Any proposal seeking to cap minority and Low-Income debt-to-income ratios at 28 percent would disproportionately exclude minority and Low-Income borrowers from government approved programs.
Change believes that borrowers’ loans should be underwritten considering the totality of the borrower’s creditworthiness and not based on a single metric. Therefore, borrowers can lack creditworthiness even with a debt-to-income ratio below 28 percent and can be highly creditworthy with a debt-to-income ratio well above 28 percent. Looking solely to DTI ignores a borrower’s assets, FICO score, history of paying an equivalent monthly housing amount, guarantors, reasonably expected future income, recent/current year promotion, bonuses, recent graduations, recent immigrations, new jobs, and numerous other important considerations when evaluating a borrower’s creditworthiness.
TOPIC #20: How Does Change Help Black and Latino Homeownership?
FACT: Change’s denial rate for Black and Latino homeowners is approximately 1/3 of the national average. This is due to Change offering:
- a full suite of government and agency products to borrowers with no overlays;
- approximately 20 down payment assistance programs;
- non-traditional loans for borrowers with alternative documentation;
- Special Purpose Credit Programs to help Black and Latino borrowers attain home ownership;
This results in more of Change’s originations being made to Black and Latino borrowers – over twice the national average. Additionally, Change loans to Black and Latino borrowers are not just providing them access to the same government/agency loans that they could get from banks and non-CDFI lenders, but providing them access to proprietary loans that meet their unique credit needs. Many larger lenders, such as Rocket Mortgage and UWM, only provide access to Agency/Government and other QM Mortgages that use automated underwriting. Change provide access to those same products: however, Change also provides access to proprietary products that allow creditworthy borrowers with more complex documentation (such as gig works, contractors, small business owners, individuals with multiple jobs, and others) to obtain homeownership.
Beyond just Black and Hispanic/Latino homeowners, Change’s Target Markets include Low-Income borrowers and borrowers in Low-Income communities. Change lends approximately $3 to Target Market borrowers for every $1 it lends to non-Target Market borrowers. The national average is less than $0.50. This means that Change’s lending impacts underserved borrowers in Change’s Target Markets at over 6x the rate of the average bank and non-bank lender.
Change is proud that it outperforms its peers with respect to its lending in each of its Target Markets compared to its lending to non-Target Market borrowers. That is, based on the same amount of lending to non-Target Market borrowers, Change outperforms peers with respect to lending to both Black and Hispanic/Latino borrowers, as well as Low-Income borrowers and borrowers in Low-Income communities. This contributes to Change’s double bottom line goal of leveling the playing field in homeownership.
TOPIC #21: Who are Change’s Strategic Partners?
FACT: Change is proud to call the banks that lend money to it, invest in it, or buy loans from it “Strategic Partners.” Change is also proud to partner with numerous vendors who we deem to be Strategic Partners for providing Change with the capabilities and knowledge to best serve its Target Markets. Change is proud that it has close to one hundred banks, insurance companies and asset managers who invest in its equity and debt, lend money to its business, and/or buy its loans. Its financial partners play a strategic role unlocking capital for underserved homeowners. Building the liquidity necessary to lend to underserved borrowers is critical to solving America’s racial homeownership gap. Many of its partners are banks, insurance companies, and asset managers who seek to achieve a double bottom line impact. Bank regulators may provide Change’s banking partners with CRA credit for their partnerships with Change if they determine that the bank’s partnership with Change results in community development that qualifies for credit under CRA regulations.
i The information contained herein is for informational purposes only and is not part of any offer to invest in The Change Company or its affiliates or any securities of any kind. The information, policies and procedures are subject to change at any time without notice. The information should be used only for the educational purposes for which it is provided and shall not be used as a basis for any investments or investment advice.
1 12 C.F.R. § 1003 – Appendix B.1
2 12 C.F.R. § 1003 – Appendix B.1
4 12 C.F.R. § 1003 – Appendix B.11
5 12 C.F.R. § 1003 – Appendix B.9