The important role of housing and financial capability counseling in creating sustainable homeowners cannot be overstated. Increasing support for and the availability of counseling in the Federal Housing Finance Agency's proposed "duty to serve" rule could play a crucial role in helping lenders and nonprofits safely increase access to credit for underserved markets.
The FHFA should encourage government-sponsored enterprises Fannie Mae and Freddie Mac to support high-quality homeownership counseling as part of the "duty to serve" rule.
A HUD-approved, nonprofit housing counselor can help guide people through what can seem a daunting, confusing process. Many people don't realize that they have mortgage choices and information and financial resources available to them, or that they can proactively compare services and costs. NeighborWorks America's second annual America at Home survey found that 70% of U.S. adults are unaware of down payment assistance programs available for middle-income homebuyers in their community.
Down payment assistance is especially helpful for homebuyers who are unsure about affordability because of student loan debt. When asked whether the home-buying process is complex, 70% of adults in the NeighborWorks America survey said yes. Housing counseling or education can bridge this gap.
An independent evaluation of the NeighborWorks pre-purchase housing counseling program by researchers Neil Mayer and Associates and Ken Temkin using Experian data found that borrowers receiving NeighborWorks counseling were one-third less likely to fall 90 or more days behind on their mortgages in the first two years. These reductions in delinquencies were the same for first-time and repeat buyers.
The results of the Mayer/Temkin evaluation are consistent with an April 2013 Freddie Mac study which found that counseling reduced the first-time homebuyer delinquency rate by 29%. Incorporating counseling with manufactured housing products deserves specific focus because counseling can affirmatively enhance the sustainability of housing in general, and in this more specialized line of business, in particular.
There remains a challenging lack of access to credit in all three of the underserved markets covered under the recent FHFA proposal on Fannie and Freddie's "duty to serve" housing markets. There are specific advantages for borrowers and for the GSEs when homeowners build their financial capability and can then can make timely mortgage payments and stay in their homes.
In addition to encouraging housing and financial capability counseling, NeighborWorks America also supports expanding Fannie Mae and Freddie Mac's business to include a pilot program for the purchase of chattel loans and to receive credit for their purchases that will benefit the market.
Chattel property constitutes a large proportion of manufactured home lending, and there is a continued need to understand how to responsibly expand lending in this market. High-quality homeownership education and counseling would be an important component of a chattel loan pilot.
As NeighborWorks America's public comment letter to the FHFA details, the organization is encouraged by the potential impact the rule could have in increasing access to credit for underserved markets. With changes to highlight the importance of housing and financial capability counseling, many individuals' lives will likely be improved and the rule will have an even greater and lasting impact in these communities.
Jeanne Fekade-Sellassie is the senior vice president of national initiatives at NeighborWorks America.