July 2012

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FEATURE try, starting at $70 for a couple at the low end to $400 on the high end. But the big question remains, who should pay? For some the answer is obvious—the buyer. After all, the buyer is benefit- ing from the service. Cook and Tufford both think that the bill for pre-purchase counseling should go to the homebuyer. "I don't know anybody who thinks the seller should pay, Tufford says. "If the buyer doesn't have the money to put out, then maybe [he or she] shouldn't be buying a house." But peel back the onion and you will see that the buyer isn't the only one benefiting. Everyone in the mortgage food chain—investors, originators, and the government—benefits when a homeowner pays on time and doesn't go into foreclosure. To make sure everyone has skin in the game, Hernandez, Harper, and others believe everyone should pay a little. "If your interests are served, then you should be prepared to pay," Hernandez says. One way to share the cost is to wrap counseling into closing costs. If the homebuyer's mortgage is current a year later, the home- buyer could receive a rebate. "So it comes out of the con- sumer's pocket, but there is an incentive for [him or her] to perform on that loan and get paid back, seling really isn't controversial. In fact, once a fair and equitable way to share costs is developed, pre-purchase counseling may be one of the only programs every- one—industry and consumer— agrees on. "We are strongly advocating viable model." In the end, pre-purchase coun- " she says. "I think that is a Looking for Proof T wo recently released stud- ies found that pre-purchase counseling helps people from falling behind on their mortgages and help homeowners at risk of foreclosure. Both studies were conducted the United States Department of Housing and Urban Development. The pre-purchase counseling re- search was started in 2009, covered an 18-month period, and included 573 people. The study's goal was to identify who seeks pre-purchase counseling, the types of services those people received, and whether or not they bought a house in the following 18 months. The study found that 35 that the vast majority of people have access to an independent third party to help advise them whether or not this [buying a home] is the right thing for them now," Hernandez says. "We think pre-purchase counseling should be built into the process." percent of the participants be- came homeowners during that 18-month period. Most had a FICO score of 620 (71 percent) or higher. Counselors also reported that 72 percent of the people enrolled completed counseling. Of those, only one buyer fell behind on mortgage payments 12 to 18 months after counseling. HUD researchers reported that 58 percent of those enrolled in counseling to identify homebuyer assistance programs, while 58 per- cent wanted to get down-payment or closing cost assistance so they could qualify for a specific loan program. The study's participants were 52 percent African-American, 32 percent white, 19 percent Hispanic, and 16 percent either multiracial or of another race. The study's results found that counseling helps people "make good decisions regarding home- ownership and might help to make homeownership more sustainable." "I think this study will help promote the idea that pre- purchase counseling should be a standard part of the transaction," says Colleen Hernandez, CEO of the Washington, D.C.-based Homeownership Preservation Foundation. "Every consumer needs access to a trusted, neutral, independent third-party ally to help advise them on the process." The analysis and statistics behind the case for pre- purchase counseling. The companion Foreclosure Counseling Outcome Study in- volved 824 counseling clients, iden- tifying the services they received and homebuyer outcomes through an analysis of credit report data. The study found that almost 75 percent of those falling behind on their payments did so because they lost their job. Among the other findings: Most participants attempted to contact their loan servicer when they fell be- hind. However, they were unsuccess- ful in negotiating a deal on their own. But when a counselor got involved, 60 percent of those people obtained a mortgage remedy and 56 percent became current with their pay- ments. Moreover, nearly 70 percent of people seeking counseling before becoming delinquent remained in their home and were current on their payments. But only 30 percent of the people who were six months or more behind on their payment when they sought counseling were in their homes or current on their mortgage. THE M REPORT | 37

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