July 2012

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FEATURE into the current foreclosure crisis. Greg Cook, a mort- gage broker and owner of in San Diego, has witness the fall- out firsthand. Cook says almost everyone in his market is a first- time buyer because homes have lost so much value that people can't move up. "When I look at the profile of a first-time homebuyer, the big- gest obstacle is that people don't have any idea what they are signing up for," he says. "People that should have had pre-pur- chase counseling didn't have it." Cook has heard of cases in They did—some drumming their fingers on the desk, others study- ing their watches, and still others openly wondering when the class would be over. "They didn't learn anything so says. "It's up to us to explain to them what everything is so they understand the important parts." If mandating pre-purchase they didn't behave any differently," she says. "So mandating has its good side in that lots of people must do it. But the downside is that they don't learn as much." counseling isn't popular, then how should it be done? Hernandez favors incentives. Her idea is to tell first-time buyers that taking a counseling class will gain them access to a lower interest rate. Moreover, if they California where new homeown- ers didn't understand that since their property taxes and insur- ance were not impounded they were responsible to pay them twice a year. Most thought the bills were built into their monthly mortgage payment. Consequently, they fell behind and eventually went into foreclosure. "I personally think that first- time homebuyers should go through pre-purchase counseling," Cook says. "It will explain that this is what you're signing up for, this is what your payment is, and this is why this happens." The Pros and Cons of Mandatory Counseling I affordable loans for low- to moderate-income people or high- er-risk clients. To get the lower rate, borrowers had to attend a pre-purchase counseling class. "Bankers said to the borrowers n the 1990s, there were several mortgage programs offering "So mandating has its good side in that lots of people must do it. But the downside is that they don't learn as much." — Colleen Hernandez, Homeownership Preservation Foundation experience. "I had people that didn't speak Harper had much the same that they had this affordable loan product that you can only get if you take Colleen's course and come back with a certificate," Hernandez remembers. "So they walked in the door and said, 'I need a certificate'." To get the prized certificate, borrowers had to sit through Hernandez's four-hour class. 36 | THE M REPORT Loan Production with Monarch Mortgage in Grand Blanc, Michigan., also doesn't believe that mandating pre-purchase counseling is the right choice. In fact, Tufford believes educat- ing homebuyers is a mortgage professional's job. "It should be our job as professionals to make sure our clients understand what they are getting themselves into," he English sit through four hours of me blabbering because they needed me to sign something say- ing that they were there," he says. Jeff Tufford, vice president of ize the kind of behavior that the training is advocating," she says. "The mandate I toyed with a lot. You can't mandate what they learn and you can't mandate that they change their behavior. But you can incentivize those things." But where public money is keep current with the loan over the first year, they will receive a rebate or an interest rate break. "You do something to incentiv- behind you in line willing to do that," Harper says. Buying a home can be "There is someone standing exhausting for even the most informed buyer. So the last thing a new homebuyer needs is a counseling course that, well, isn't worth his or her time or money. To make sure everyone is using the same playbook, a group including mortgage industry leaders, the United States Treasury, HUD, the major mortgage lending banks, and nonprofit counseling agencies got together five years ago to develop the National Industry Standards (NIS). The standards establish a minimum requirement for all pre-purchase counseling classes. "The idea behind the NIS was to raise the bar. HUD, Fannie, Freddie, Bank of America, everybody has endorsed those standards," he says. "So stakeholders who are going to give money to a nonprofit for education are not going to fund anybody who has not adopted those standards." Those counseling standards help ensure that people using public funds are getting what they need to navigate what Harper calls a "very nontransparent process." He ventures that most people leaving escrow or closing wouldn't be able to explain the meaning of the documents in their hands. "They'd look at you like, 'Huh?'" he says. "It is a very nontransparent process, so education is valuable." Who Should Pay involved, Harper says mandating pre-purchase counseling is neces- sary because funding is limited. A first-time homebuyer using public funds should be willing to take a pre-purchase counsel- ing class. If they aren't, then they should step aside. U class, pre-purchase counsel is available in a plethora of ways, from online to on your tele- phone. Of course, if you're old fashioned, you still can attend a class. Pre-purchasing counseling costs may vary across the coun- nlike in the '90s when you had to physically attend a

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