Senate committee advances bill to let borrowers roll student debt into mortgages amid lender-safety questions

The New York State Senate Committee on Corporations, Authorities and Commissions on May 13 advanced S.5790, the Student Loan Assistance and Home Purchase Act, sending the bill to the Senate Housing Committee for further consideration.

Sponsor Senator Sepulveda introduced the bill as a measure to facilitate home purchases by individuals carrying student debt by allowing that debt to be consolidated into a mortgage product. The bill, as described in committee, would permit a mortgage-financing program tied to an authority (the bill text names a state mortgage agency to set eligibility and interest-rate terms).

The bill prompted questions from committee members about whether lenders would be allowed or directed to ignore borrowers' past payment histories or defaults when deciding whether to extend financing. Senator Muzera said the proposal raised a risk that banks might issue mortgages to borrowers who cannot afford them and that the policy could ultimately increase foreclosures in vulnerable communities. "Is it really the right thing to do that we would allow somebody the opportunity to get [a] loan and burden themselves with more loans if we know that they're not gonna be able to pay it?" Muzera asked.

Senator Sepulveda responded that the principal benefit would be lower interest rates on consolidated debt and that the state mortgage agency named in the bill (the State of New York Mortgage Agency, SONYMA) would determine eligibility and interest-rate terms. "The benefits to consolidating your student loans into a mortgage is when you're offered a new a lower interest rate," Sepulveda said, adding that specifics about eligibility and safeguards could be addressed in amendments.

Committee members also asked whether the consolidation could allow a borrower to finance more than the home's value by folding student debt into mortgage principal, a concern Sepulveda said the committee would examine and could amend.

A motion to move the bill was made in committee; the motion carried and the measure was reported to the Housing Committee for further review and potential amendment.

Next steps: S.5790 will be considered in the Senate Housing Committee, where members indicated they expect to discuss amendments to clarify borrower eligibility, lender underwriting standards and whether the named mortgage agency' will have explicit authority and limits when setting rates and eligibility.

Reporting note: Committee remarks about S.5790 occurred during the bill introduction and debate portion of the May 13 committee meeting; a formal committee vote recorded the bill as passed out of committee and referred to the Housing Committee.