What's to learn from homeownership counseling?

by Broderick Perkins

(3/25/2013) Homeownership counseling has been mandated for a host of home loan programs and foreclosure prevention efforts, in part, to take some of the guesswork out of determining if a homeowner is going to fail and default on a mortgage.

In one of the latest counseling efficacy studies, Neil Mayer and Associates and Experian's "Pre-Purchase Counseling Impacts on Mortgage Performance: Empirical Analysis of NeighborWorks America's Experience," examined 75,000 mortgage loans originated from 2007 to 2009, just as the mortgage crisis was gripping the nation and mortgage lenders began to get tight-fisted with home loans.

The study of NeighborWorks' counseling efforts found that homebuyers who receive NeighborWorks pre-purchase housing counseling and education were nearly one-third less likely to fall behind 90 days or more on their mortgages within two years of origination, than consumers who don't receive NeighborWorks pre-purchase counseling and education.

For years now, other studies have revealed similar findings. Both in good times and bad, homeowners who get an education about their investment get a return on their effort in the form of long-term homeownership.

The power of education

"NeighborWorks housing counseling and education provide a soup-to-nuts packet of homeownership information that prepares a homeowner to be a long-term homeowner," said Douglas Robinson, a spokesman for 35-year-old NeighborWorks, a Washington, D.C.-based consortium of community-based non-profits focused on affordable housing and community development.

Homeownership counseling is like an otherwise non-existent manual for homeownership. Counseling also works hand it hand with new regulations that mandate certain mortgage lending and servicing rules that also help prevent homeowners from failing.

Homeowners are responsible for their homework. Lenders and servicers are responsible for transparent disclosures, mortgages that aren't toxic, abusive or predatory and speedy homeowner assistance when necessary.

If more counseling mandates and mortgage regulations were around before the last boom-bust cycle, there's a pretty good chance there would not have been a bust - at least not like the bust of the Great Recession.

In fact, that's the premise behind the rules that often come with mandated counseling — to prevent a repeat of the mortgage meltdown, the housing crisis and economic collapse.

Last year, a U.S. Department of Housing and Urban Development study found that even among homeowners facing foreclosure who received counseling, 69 percent obtained a mortgage remedy, and 56 percent were able to become current on their mortgages.

What you don't know can hurt you

So, what does homeownership counseling entail and what do you learn that makes you such a solid homeowner?

relatively few people buy a home more than once or twice in a lifetime. Much of what you learn is what you didn't expect to encounter as a homeowner - both the large and the small.

"I think some of the 'ah-ha' type things involve the real cost of homeownership besides the mortgage, taxes and insurance. So many people don't know how much it costs to maintain a home in decent condition — lawn, roofing, siding, paint, etc." said Robinson.

"I know that in my neighborhood if you don't cut your grass regularly there is a fine. Homeowners' association dues is another cost that some people don't think about, and it is a cost that might not remain fixed," he added.

First counseling is almost always free, no cost, zero, nada, zilch, and that makes it even more invaluable.

The type of counseling varies depending upon the need. There's counseling for distressed homeowners facing foreclosure, counseling for those applying for special mortgages, and counseling for those considering and entering bankruptcy , among other types.

The most useful counseling is before-the-fact, pre-homeownership counseling everyone can benefit from before buying his or her first home.

Next up: A detailed look inside the lessons of homeownership counseling.

Also see:

• "Mortgage reform regulations, mortgage relief programs, special mortgages mandate homeownership counseling - for good reason"

• "Inside the lessons of homeownership counseling"