Magazine article American Banker

VIEWPOINT: Homeownership's Foot Soldiers

Magazine article American Banker

VIEWPOINT: Homeownership's Foot Soldiers

Article excerpt

Byline: John von Seggern

The mortgage system is broken and 2010 marks the moment when as a nation we begin the long, difficult job of fixing it. In the process, we need to remember to keep what works. One of those things is homeownership counseling.

In the years preceding the collapse of the housing market, counseling, including educational classes on budgeting, creditworthiness, mortgage financing and home maintenance and repair, grew as an important component of home lending.

Looking back, there is an indication it played a role in maintaining some safety and soundness within the housing finance system. A recent study by the Center for Housing Policy indicates families who attended homeownership education and counseling significantly increased their credit scores. A study by Freddie Mac found that classroom-style homeownership education and counseling reduced mortgage default rates.

Further, low- to moderate-income homebuyers assisted through the Federal Home Loan banks' Affordable Housing Program have experienced lower-than-average rates of foreclosure, according to a review by the Federal Home Loan Bank of Cincinnati. For mortgages originated in 2003-5, average foreclosure rates of 1.29% on AHP-assisted mortgages were less than those for HUD down-payment assistance programs, at 2.9%, or FHA-insured loans, at 4.16%.

About 90% of those receiving assistance with a home purchase through AHP are first-time homebuyers, and the Home Loan banks require first-time homebuyers complete homeownership counseling. David Hehman, the president and CEO of the Cincinnati Home Loan Bank, attributes the program's success to the predominance of conventional fixed-rate mortgages made by community lenders and the high level of homeownership counseling participation. He says homeownership counseling "helps buyers steer clear of the problems that often lead to delinquency and foreclosure. …

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