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Industry Voice: Housing Counseling Improves Access to Credit

By Lautaro "Lot" Diaz | August 23, 2016

Industry Voice: Housing Counseling Improves Access to CreditIn a tight credit environment, housing counseling for all communities is every bit as important as it was during the foreclosure crisis. Without it, individuals with lower wealth and income will have a more difficult path to homeownership.

Housing counseling serves many purposes. It provides families in the home-buying process with financial, budgeting, and money-management advice.

There’s plenty of data backing up the benefits of counseling. A 2014 report sponsored by the Urban Institute reviewed outcomes on 240,000 troubled homeowners who received counseling under the National Foreclosure Mitigation Counseling program. Counseled clients were 2.83 times more likely to receive a loan modification and 70 percent less likely to re-default on a modified loan.

Addressing the Challenges

People don’t recognize that achieving homeownership is not only difficult financially, but also from a conceptual and informational perspective.

We assume that consumers going to a mortgage banker or broker will figure it out and get the information they need. Families in higher income brackets have had the experience of purchasing a home and understand the process. They hand down this knowledge from one generation to the next, from family member to family member. That’s not necessarily true for those with lower incomes. Lack of family home-buying experience leaves a gap in market knowledge.

The clear connection between pre-purchase assistance and post-purchase success shows that a counselor’s goals completely align with those of a responsible lender. A good counselor will help the buyer think ahead and make sustainable financial decisions. The interests of the housing counselor and lender are fully aligned on this point. Housing counselors meet a true need, and the right players under the right scenario will create a win-win situation.

Encouraging Latino Homeownership

My first job at the National Council of La Raza (NCLR) in 1997 was managing a HUD counseling education grant that encouraged Latino homeownership. We started the NCLR Homeownership Network (NHN) with four nonprofit organizations. We now have 51 organizations and have helped more than 580,000 families with their housing counseling needs.

Many families face barriers when entering homeownership. They can only overcome these barriers with education that supports them throughout the complex home-buying process and helps them avoid the dangers of a product they don’t understand.

Because It Works

There still seems to be some mystery surrounding counseling and why it works. The answer is pretty straightforward. What a family gets when they go to a counselor is a service, which ensures that the family understands its options and can qualify before even deciding on a mortgage product.

They will know if they are eligible for different products given their situation. They may find out that they can qualify for a better product if they’re willing to wait six months. They will understand everything that’s required once they purchase a home – such as maintenance and monthly costs – and the impact that will have on the family budget. They’ll know the steps to take if they get in trouble, understand the role of the servicer, and be able to find the community resources that are available to help.

Education is key, and programs like Framework – a required online homeownership education course for Fannie Mae’s HomeReady® Mortgage – are helpful for buyers.

Because in the end, all Americans should have the tools they need to make the housing choice that’s right for them. So that when they’re ready to buy a home, they can achieve sustainable, successful homeownership.

Lautaro “Lot” Diaz is vice president of housing and community development at the Washington, DC-based National Council of La Raza. Since 1997, the HUD-approved NCLR Homeownership Network has helped more than 580,000 families with their housing counseling needs.

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