WASHINGTON — The Center For Responsible Lending, a subsidiary of the $301 million Self-Help Credit Union and a significant participant in the nationwide debate over payday lending and other loan practices, has become embroiled in a controversy involving one of its early funders.The controversy came to light in a Dec. 24 story in The New York Times. As part of a series looking at the roots of the current financial crisis, the paper profiled Herbert Sandler, who was described by the paper as a founder of the organization and an active promoter of the optional adjustable-rate mortgage.Critics have charged that optional ARMs played a key role in bringing on the current financial crisis because they allowed borrowers to sometimes make mortgage payments that were so small they did not cover the interest on the loan. Critics pointed out that this practice actually left the loan larger at the end of the month rather than smaller as homeowners would expect.Sandler and his wife, Marion, promoted optional ARMs, naming the product Pick-A-Pay, when they ran a mortgage lender called World Savings Bank. There have since been lawsuits filed by disgruntled borrowers and others about the loans, particularly those that were sold by an unethical broker who has since been sentenced to a year a prison, the article said.CRL documents identify the Sandler Family Supporting Foundation as one of a handful of foundation supporters, including the Ford Foundation, the John D. and Catherine T. MacArthur Foundation and the Annie E. Casey Foundation. Mr. Sandler has also sat on the CRL Board though is not listed as a board member currently. Further, an article in The National Review, a publication critical of the Sandlers and their philanthropic agenda, reported that the Sandler Foundation (formerly SFSF) had given CRL $20 million through the middle of 2007.Kathleen Day, spokeswoman for the CRL, did not challenge the article's reporting that Sandler played a key role in the 2002 founding of the organization but emphasized that Sandler had stepped forward to help Martin Eakes, CEO of both CRL and Self-Help CU, expand work that the CU had already started."Certainly he [Sandler] stepped forward to provide the funds that founded the center, but the vision and work of the center already existed," Day said. "So while he gave the seed money to start the organization, that money went to fund an effort already underway," she added.Day challenged the article more directly on its allegation that Sandler convinced Eakes to change his view of prepayment penalties written into mortgage contracts. Prepayment penalties punish borrowers if they refinance their mortgage with another lender. Critics have charged such penalties are bad for consumers and used to keep borrowers trapped in expensive, high-interest loans."That's simply false," Day said of the suggestion that Eakes responded to Sandler and changed his position on prepayment penalties. "Anyone can go to our Web site [www.responsiblelending.org] and see that we have opposed prepayment penalties in our position papers and testimony and comments from the beginning."But Day acknowledged that the center, in response to Sandler's defense of prepayment penalties on prime loans, had limited its opposition somewhat-as part, she was quick to add, of a compromise toward legislation mandating tougher public policy on prepayment penalties on subprime loans.Day put this compromise in the context of CRL seeking a stronger position on prepayment lending in subprime loans, the segment of the mortgage industry that had long held its primary attention. Even though subprime loans only made up a minority of loans granted during the mortgage origination heyday, they carried by far the greatest numbers of prepayment penalties, Day explained."That's just unconscionable," Day said, "and that has been our primary focus." The center was less interested in prepayment penalties on prime loans, she said, but has since come to oppose all prepayment penalties as unfair and abusive to borrowers.Sandler could not be reached for comment on the controversy before press time.It's unclear how the brouhaha over Sandler and the CRL may impact the center's work in the future. As a key opponent of payday lending, CRL has drawn attacks from that industry, and it seems likely those efforts may draw upon the Sandler controversy.But Day said the organization was working hard to put together a letter to The New York Times to correct the story and pointed out that none of the previous attacks on the group had proven to have much traction.–[email protected]