Monday, September 10, 2012

Housing Education, Counseling and the Future of the Housing Economy

This thought piece was originally published September 6, 2012 on the Bipartisan Policy Center's website. The question was: What is the role of housing education and counseling in the future housing economy and finance system?

Photo of Eileen Fitzgerald
By Eileen Fitzgerald
Chief Executive Officer
NeighborWorks America
NeighborWorks America is a strong proponent of homeownership education and counseling. As the current economic crisis demonstrates, objective pre-purchase homeowner education — before shopping for a home or a loan — is the buyer’s best defense against delinquency and foreclosure. It is a critical element of sustainable homeownership — which is a homeownership opportunity that makes sense for a consumer’s current and expected budget and income, family situation and mobility needs. Homeowners receiving upfront homeownership education and counseling learn how to develop a budget, responsibly manage credit, and budget for and handle home maintenance. They also learn how to navigate the complicated home acquisition and financing process so that they can make the best choices for their situations. These homeowners find themselves facing foreclosure with far less frequency than other homeowners.

We encourage lenders, government sponsored enterprises, state housing finance agencies, USDA, VA and FHA to create meaningful incentives, such as higher loan-to-value requirements, or other preferred terms or rates for consumers to take advantage of pre-purchase education and counseling well in advance of applying for a mortgage. We also strongly urge these entities to track which borrowers receive homebuyer education and counseling and report on the performance of those borrowers in aggregate. This would provide all of us with a much better understanding of the impact and value of homebuyer education and counseling.

Core support for a homeownership education and counseling infrastructure is critical so that broad access can be available across the country. Standards of quality are essential for housing counseling agencies, and the current National Industry Standards provide a strong framework. The HUD Counseling Grant dollars and the new HUD Office of Counseling play a key role in ensuring access and standards of quality. However, HUD or any other governmental funding will be insufficient to meet the scale of the need for quality homebuyer education and counseling. So it is essential to integrate a market perspective. Lenders should provide significant product incentives or rebates to counseled borrowers to reflect the value the lender is receiving — a quality new borrower who is prepared, less risky and ready to go. If the market reflects the value of this service through incentives, then potential new homeowners will be more willing to pay a larger portion of the cost of the homeownership education and counseling since they will be refunded that cost and more (through additional product incentives).

There are many variations of this concept — different splits in payments between potential homeowners and the lenders, payments funded through the transaction and reflected on the HUD-1, or full cost recovery to the counseling agency, but with a small portion of the funds held back for two to three years and paid to reflect borrower performance.

Sustainable homeownership is essential to prevent a repeat of the current housing crisis. Homebuyer education and counseling is a critical element, and we must determine how to use a small amount of core federal dollars to leverage a market approach that will achieve greater scale and create more successful homeowners.