As foreclosure rates soar, is ineffective housing counseling to blame? It depends on whom you ask. Some experts--and even some studies--say that counseling helps new homeowners clarify a complex process. Others complain that counseling results are not measured and quality varies among agencies.
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Washington clearly sees the flaws. Congress recently slashed the Department of Housing and Urban Development's $88 million in grants to housing counseling agencies earlier this year. With that money, HUD-certified agencies--which number about 2,700--could offer a broad menu of services--including foreclosure help or new-homeowner advice--usually for free. Now, agencies worry that they will have to slash staff and services.
Studies show that new homeowners desperately need coaching, but are not always getting it. According to a Mortgage Bankers Association study, homebuyer education and counseling program quality vary widely. Some prepurchase programs lowered mortgage defaults by up to 34 percent; other programs had virtually no effect.
A different study by the Zillow Mortgage Marketplace showed that homeowners were woefully under-schooled in key areas. For example, over 50 percent said they didn't understand adjustable-rate mortgages.
To settle this debate, we asked top real estate and housing counseling experts to shed some light on how well they believe housing counseling works. Here are their views:
Overwhelmed with demand--fewer grants
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Bruce Dorpalen is the director of public affairs at Affordable Housing Centers of America (AHCOA).
For many years, housing counseling focused on home buying. Recently, the dominant theme is foreclosure counseling. We also help people budget their money. So, housing counseling works on multiple levels.
The HUD cuts are a disaster, though. Currently, we have 30 trained housing counselors. But we won't have as many after the cuts. And for-profit loan modification outfits aren't as effective at counseling homeowners. There are lots of modification scams out there too. People are better off having an advocate in their corner. At the same time, every agency is overwhelmed with demand.
During the foreclosure counseling process, we hold five-plus meetings. They include topics such as the affordability ratio of income to house payments. Within 10 days, we get a packet of information to the servicer. The challenge is that when the servicer gets it, the process grinds to a halt. We have stopped foreclosures though.
HUD defunding is the worst thing that can happen
JoAnne Poole is the vice chair of the National Association of Realtor's housing opportunity committee and a Realtor in Severn, Md.
The NAR believes that counseling for first-time homebuyers is important. Buyers get inside information on how to protect themselves--everything from house inspection to lenders. Courses are usually a minimum of eight hours and include portions on credit or prepurchase issues. And accredited agencies are effective at helping homebuyers.
So, the HUD defunding is the worst thing that can happen. Not having counseling could affect home sales. Many Realtors encourage first-time homebuyers to take HUD-accredited counseling programs. And now that the real estate market is just starting to recover, the rug is being pulled out once again.
Also, foreclosure counseling tells homeowners their rights. Many people don't know them. Without counseling, foreclosure rates will increase and predatory lending could start up again.
Homebuyer education is not currently effective
Dean Wegner is an Arizona-based mortgage broker and author of Life After Foreclosure.
Homebuyer education is not currently effective. But proper home-buying courses can enlighten consumers about homeownership. It is a 30-year contract.
The problem is this: there is no public respect for home-buying education now. People feel punished if they have to attend. People need to be proud that they have graduated from it.
To be effective, counseling programs should advise homeowners how to communicate with their mortgage company. Also, people must understand the macroeconomics of mortgages. Many people do not realize that investors participate in mortgages, and they are not just an agreement with a bank. Actually, mortgages are an agreement with the global economy. There are $500 trillion in mortgage-related products in the marketplace. Explain that to a class.
Counseling: It's a mixed bag
Ilyce Glink is the publisher at ThinkGlink.com.
Some housing counselors are fantastic. Some aren't. For first-time homebuyers, counseling can be very effective--if the program is good. Understanding the home-buying process can be tough. But programs are a mixed bag.
For loan modifications, HUD-certified counselors effectively connect homebuyers with lenders. Some nonprofit counselors hold big sessions and claim that they are helping people with modifications. But the numbers do not support it. Some nonprofits are cherry-picking people they know they can help. Many consumers feel that false promises were made, though. Still, housing counselors are trying to help.
The original article can be found at HSH.com:
Does housing counseling work?