Meaningful Incentives Will Encourage Housing Education and Counseling

What should the federal government’s role be in helping prepare consumers to make financial decisions? How can the housing industry help lead the way for better consumer knowledge and protection?

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NeighborWorks America is a strong proponent of housing education and counseling. We believe it has an important role to play in helping prepare consumers to make responsible financial decisions. And, we know that homeownership education and counseling can achieve real impact for new homeowners, as well as for families facing foreclosure. Several recent studies from NeighborWorks America, and others, confirm this. In March 2013, we released an independent evaluation of the NeighborWorks pre-purchase program by researchers Neil Mayer and Ken Temkin using data from the credit report company Experian, which evaluated 75,000 mortgages originated between 2007 and 2009. The study found that borrowers who received homeownership education and counseling from NeighborWorks organizations were one-third less likely to fall 90 days or more behind on their mortgages in the first two years. These results were consistent with a study released in April 2013 by Freddie Mac which showed education and counseling reduced first-time home buyers’ delinquency rate by 28% or more.

While pre-purchase education and counseling are critical, we do not believe they should be mandatory. Instead, we encourage lenders, GSEs, state housing finance agencies, USDA, HUD and the Federal Housing administration to create meaningful incentives such as higher LTV requirements, or other preferred terms or rates for consumers to take advantage of pre-purchase education and counseling that is offered well in advance of mortgage closing. The federal government can play an important role in helping prepare consumers to make financial decisions. Encouraging consistency, quality and an outcomes orientation for financial education and financial capability programs is a critical function. Grant support from the federal government for local housing counseling programs can help support the basic infrastructure that can then be leveraged with consumer fees, philanthropic and corporate support. The federal government also plays a critical role in endorsing high quality standards such as the National Industry Standards for Homeownership Education and Counseling and providing information and a web presence to direct consumers away from scams and to approved agencies. We believe it is also essential to integrate the housing industry into leading the way for better consumer knowledge and protection. First, they should support and encourage consumers to take the time to understand the homeownership process, ideally through homeownership education and counseling, before applying for a mortgage. They should also support the National Industry Standards for Homeownership Education and Counseling and ensure that their local and national partners and grantees also comply with the standards. The housing industry should recognize the value of homeownership education and counseling in bringing prepared, more delinquent resistant customers into homeownership, as reported in empirical evidence including the NeighborWorks/Experian study and the Freddie Mac study. There is economic value to the lender, the realtor, the builder (when applicable) and the investor when a customer is better prepared, moves more quickly through the homebuying and mortgage underwriting process and performs better on his or her mortgage. We hope that the industry will find efficient ways to pay for this value created. Examples of such payments include a strong incentive for a borrower to get counseling through reduced transaction fees and commissions, better terms and interest rates and a repayment of a prepaid housing counseling fee. Eileen Fitzgerald is the CEO of Neighborworks America.

Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month contributors from different parts of the housing sector will be invited to respond to a discussion topic. Guest posts will feature prominently on BPC’s website, as well as be shared regularly with Housing Commissioners to help inform their work. Have a pressing question you’d like us to consider? Please leave it in the comments section. We encourage you and our expert bloggers to add comments, contributing to the national dialogue on solutions for the future of the housing sector. Expert bloggers are not members of the BPC Housing Commission. Any views expressed on this forum do not necessarily represent the views of the Housing Commission, its Co-Chairs, or the Bipartisan Policy Center.