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Homeowner counseling: "Do you, John and Jane, take this house ..."

Home buying is complex, confusing and sometimes even dangerous for inexperienced consumers. But shoppers don't have to feel intimidated anymore.

The U.S. government, Fannie Mae, Freddie Mac and some nonprofit agencies have teamed up to make pre-purchase counseling widely available in recent years.

Consumers now can take free classes that teach everything from money management to the loan closing process in cities and towns around the country. And while lenders only require attendance for borrowers in certain loan programs, novice mortgage hunters may want to consider going anyway so they don't find themselves flummoxed in the field.

"Anyone that's seriously thinking about or just wants information about the home buying process, I would strongly encourage them to attend a home buying workshop before they do anything," says Teresa Johnson, housing director at the Urban League of Palm Beach County in West Palm Beach, Fla. "If they would just take the time out on the front end to attend a class and become informed, it would work out so much better.

"There are so many things that new homeowners are unaware of," she adds. "All we're trying to do is arm them with information."

Federal intervention
Fannie Mae, Freddie Mac, the Department of Housing and Urban Development, state housing agencies and lenders started pushing pre-purchase counseling in earnest during the mid-1990s as a way to stem mortgage defaults and foreclosures. Officials figured that consumers who received money management and credit education before shopping wouldn't end up buying more house than they could afford. By stressing the importance of making payments, they also hoped to keep people from just giving up and defaulting on their mortgages during hard times.

To promote their efforts, the agencies provided grants to nonprofits so they could pay for counseling programs and built education offices in several metropolitan areas where counselors could receive training. They formed a trade organization called the American Homeowner Education and Counseling Institute to develop standardized training methods and materials, as well as come up with a nationwide counselor certification program. Most borrowers can now find homeownership classes nearby as a result.

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"It has not always been a part of the industry. The first home-buyer education started in about '90, '91 when what the industry terms 'community lending' started, when we really started to reach low income borrowers," says Colleen Fraley, deputy director of Fannie Mae's Minnesota Partnership Office in St. Paul. "But it didn't become really active until '93, '94. That's when people realized we need to standardize this and make it more available."

Who needs counseling? Maybe you
Typically, nonprofit agencies offer the classes once or twice a month at community centers, schools, libraries and their own offices. The classes, which have two or three dozen participants on average, last from three to six hours and are sometimes spread out over two days. Students generally don't have to pay anything to attend.

Run-of-the-mill borrowers don't have to take classes to obtain home loans, but many others do.

These include borrowers who use special mortgage programs -- such as Fannie Mae-backed low down payment loans geared toward lower-income home shoppers -- and those who receive down payment assistance or interest rate subsidies from state housing finance agencies. In these cases, attendees receive certificates of completion they have to give to their lenders before closing.

Yet even if they aren't required to attend classes, first-time buyers and others who aren't familiar with house hunting will benefit by doing so, experts say. That's because counselors cover the entire buying process from beginning to end -- something that's invaluable to people who don't know the difference between APR and LTV.

Learning the ropes
At seminars run by the Consumer Credit Counseling Service of Palm Beach and the Treasure Coast in West Palm Beach, community outreach coordinator Derrick Lee discusses budgeting, credit, money management and default and foreclosure prevention.

He also brings in real estate agents to talk about locating homes, lenders to discuss qualifying for mortgages, home inspectors to talk about finding home defects, local utility officials to discuss energy savings programs and insurance agents to discuss flood and property coverage. Fair housing advocates give presentations warning minority borrowers about the potential for lenders to steer them into certain loans or otherwise discriminate against them.

"We want most people, if not all, that are first-time home buyers to come. They have no idea about what they're about to embark upon. They don't know anything. And who would, being that it's the first time?" says Lee. "We want people to be informed and educated about the process as a whole so they don't get caught in a situation where there's a house they can't afford that they're stuck in or where they've set themselves up for foreclosure."

Building better borrowers
Lenora Davis says the seminar she attended made the process easier to understand and "tied it all together." The 45-year corporate support representative with AT&T Corp. rents a place in West Palm Beach now. But she hopes to use the knowledge and certificate she picked up at her October class to buy a place by the middle of this year.

"It was very informative and a lot of questions were answered," Davis says. "The book they give you, it takes you from the first step through the last and they also walk you through the entire process."

She jokes that lenders have a force to reckon with now.

"You can't pull one over on me because I've got my little book."

Both HUD and Fannie Mae maintain lists of approved counseling agencies that borrowers can use to find classes in their area. Local housing authorities and state housing agencies can provide information too. As a result, inexperienced home buyers should have no trouble finding help before applying for a mortgage -- and avoiding potential rip-offs at closing.

"Anytime someone is dealing with a person that either is buying a house for the first time or hasn't bought a house in a while, if you can get them in home buyer education before they get into a purchase contract, then do so," says Fraley. "Anytime we can educate a buyer, we're going to keep them away from a predatory lender."

-- Posted: March 15, 2004
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