Housing Counseling Should Help with More Than Just Homebuying
by Brett Theodos and Ellen Seidman
Since the collapse of the housing market, housing counseling has largely guided clients through loan modification and foreclosure prevention. And the evidence shows it has worked. With just 2 percent of loans in foreclosure during the first quarter of 2016 and 8 percent of loans still underwater, counselors and lenders can once again look forward.
Changing demographics and a tight credit box mean that helping the next generation of potential homebuyers prepare for and understand homebuying is critical. But housing counseling needs to do more.
Counseling and coaching can help get consumers ready to buy homes and sustain homeownership. But financial coaching also offers other benefits, including helping consumers increase their savings, reduce debt, raise their credit scores, decrease reliance on payday lending, reduce financial stress, and improve financial satisfaction. In short, counseling and coaching for homeownership can improve a family’s entire financial health, even if it never leads to homeownership.
Including housing counseling in a broader financial-health strategy has several impacts:
- Families who receive housing counseling are more likely to sustain homeownership. These families develop the skills to manage their finances, including building a financial cushion on top of a down payment.
- Counseling can help individuals and families who may be less ready to buy a home in the near term but could purchase within a reasonable period of time.
- Counseling can teach families about all their options, rather than driving them toward homeownership because they don’t see any alternatives. While homeownership done right has been a major source of wealth, especially for middle- and working-class and minority families, it is not the only way to build assets.
To serve these broader purposes, however, housing counseling must evolve. Counseling programs should
- consider that clients may take longer to get ready or decide never to buy a home;
- become more integrated into other types of counseling, such as workforce counseling or credit counseling; and
- more thoroughly track client outcomes beyond whether they get a loan.
Funding housing counseling has long been difficult, and the traditional sources are becoming more scarce. US Department of Housing and Urban Development counseling funding (at $47 million for the entire United States) has not been sufficient. Neither has National Foreclosure Mitigation Counseling, now at $40 million, down from $50 million in 2015. Even with crushing rent burdens in hot markets and widespread vacancies in cold markets, many foundations have grown tired of funding housing programs, moving on to other social problems.
New funding models are beginning to emerge. Fannie Mae’s 97 percent loan-to-value program, HomeReady, will soon include a $500 counseling incentive, and Wells Fargo provides an interest-rate discount for counseling on its low–down payment loans. While these benefits initially flow to the borrower, they should provide a pathway to customer support for counseling, a strategy counseling agencies are beginning to see as smart, from both an incentive and revenue perspective. In addition, organizations such as Homewise are including counseling as an integral part of a full continuum of services— from real estate brokerage to lending and development—enabling support for counseling to be embedded in a broader business model.
Foundations, financial institutions, and government programs are eager to support strategies that improve the financial health of American families. Housing counseling is a proven, powerful tool for helping families get their financial footing. It should be used to support families interested in homeownership and those who are not.
This post was originally published on Urban Wire, the blog for the Urban Institute.