Homeowner
counseling: "Do you, John and Jane, take this house ..."By
Michael D. Larson
• Bankrate.com
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.
"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."
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