HUD Reports Counseling Program Successes: ASHI to Assist

Randall Pence, ASHI’s federal lobbyist, reports that ASHI currently is working closely with the U.S. Department of Housing and Urban Development (HUD) staff to create the package of educational materials to fully integrate home inspection in the HUD housing counseling programs described in this recent announcement.

The U.S. Department of Housing and Urban Development (HUD) released two reports on the impact HUD-approved housing counseling has for those families who purchase their first homes and those struggling to prevent foreclosure. In both studies, HUD found housing counseling significantly improved the likelihood homeowners remained in their homes.

Both the pre-purchase counseling and foreclosure counseling studies enrolled clients in the fall of 2009 and early 2010. HUD found that 35 percent of participants became homeowners within 18 months of pre-purchase counseling and only one of those buyers subsequently fell behind in mortgage payments. The foreclosure counseling study reveals that, with a counselor’s help, nearly 70 percent of those counseled obtained a mortgage remedy to retain their home, and 56 percent cured their defaults and became current on their mortgages.

“These two studies underscore the need to continue supporting housing counseling programs across this country, especially during this period when families need these services the most,” said Raphael Bostic, HUD’s Assistant Secretary for Policy Development and Research. “The evidence is clear, with a little investment on the front end, we can go a long way toward improving the chances families will buy a home they can afford and sustain their homes in the long run.”

Pre-Purchase Counseling Outcome Study

The “Pre-Purchase Counseling Outcome Study” enrolled 573 individuals seeking pre-purchase counseling services in fall 2009 from 15 HUD-funded counseling agencies across the country. The objectives of the study were to examine the characteristics of pre-purchase counseling clients, the types of services they received, and whether and under what circumstances they purchased housing in the 18 months after starting counseling.

While HUD cannot conclude that the study sample is representative of all pre-purchase counseling clients served by the study agencies, this study provides a snapshot of some pre-purchase counseling clients at 15 different housing counseling agencies across the country in the fall of 2009.
 
The key findings of the study include:

• 35 percent of the study participants had become homeowners 18 months after seeking pre-purchase counseling.
• Most purchasers had a FICO score of 620 or higher (71 percent), and were reported as having completed counseling by their housing counselor (72 percent).
• Only one of the purchasers had fallen at least 30 days behind on mortgage payments 12-18 months after receiving pre-purchase counseling services.
• Most were motivated to seek counseling to identify homebuyer assistance programs (58 percent) or to obtain down payment or closing cost assistance or to qualify for a specific loan program (58 percent).
• Study participants were racially and ethnically diverse (52 percent African American, 32 percent white, 16 percent of another race or multi-racial, and 19 percent Hispanic), were more likely to be young (51 percent were under age 35), female (72 percent), have dependents under the age of 18 living with them (57 percent).

These findings suggest that counseling helped a diverse group of low- to moderate-income individuals obtain useful information in connection with preparing to purchase a home and indicate that pre-purchase counseling helps clients make good decisions regarding homeownership and might help to make homeownership more sustainable.

Foreclosure Counseling Outcome Study

HUD’s “Foreclosure Counseling Outcome Study” involved conducting baseline interviews with 824 foreclosure counseling clients, tracking the housing counseling services they received and analyzing homebuyer outcomes through an analysis of credit report data. A follow-up telephone survey was conducted approximately 18 months after the foreclosure counseling services were delivered.

About three-quarters of the homeowners who had fallen behind on their payments did so because of a loss of income, and very few had any savings to draw upon to pay missed mortgage payments. The study finds that large shares of counseled homeowners were able to obtain a remedy, retain their home and become current on their mortgages. These outcomes were much more common among homeowners in the study who sought counseling before becoming delinquent or in the early stages of delinquency (1-3 months).

This study provides information on who accesses counseling services when facing challenges in paying their mortgage loan, what services those clients obtain and identifies the outcomes the clients experienced in the following 18 months (though it cannot assert that the counseling caused the outcomes).

The report’s findings include:

• Most study participants attempted to contact their servicer when they first fell behind, but were unsuccessful in negotiating with their lenders on their own.
• With a counselor’s help, 69 percent of counselees obtained a mortgage remedy, and 56 percent were able to become current on their mortgages.
• Nearly 70 percent of clients who sought counseling before becoming delinquent were in their home and current on their mortgage payments at the 18-month follow-up period, whereas only 30 percent of clients who were six or more months behind at the time they entered counseling were in their home and current at follow-up.

The results suggest that counseling can help many homeowners at risk of foreclosure to negotiate and obtain mortgage remedies, and to become current on their mortgage payments. In addition, homeowners in the study who were able to obtain mortgage remedies were more likely to stay in their homes. The HUD study also is one of the few studies that documents housing outcomes in relation to specific counseling services received.

To read HUD’s Pre-Purchase Counseling Outcome Study and Foreclosure Counseling Outcome Study, go to www.huduser.org/portal/publications/hsgfin/pre_purchase_counseling.html.

ASHI Letter to Timothy Mayopoulos, Fannie Mae

Mr. Timothy J. Mayopoulos, Esq.
Chief Executive Officer
Federal National Mortgage Association
3900 Wisconsin Ave. NW
Washington, DC 20016-2892

Dear Mr. Mayopoulos,

On behalf of ASHI, the American Society of Home Inspectors, let me be among the first to congratulate you for your appointment as CEO of Fannie Mae. We wish you success, and we offer our help, as you lead Fannie Mae through the challenges of repositioning the company for a redefined role in housing finance.

As you may be aware, ASHI members have played an important role in helping purchasers of homes accurately understand the condition and quality of the property. Home inspections occur in more than 80% of the purchases that occur in the U.S.

Thus, we believe one of the key factors in rebuilding confidence in the housing financial system will be to improve, increase and systematize the data available to make assessments of property valuations and risk relative to the physical conditions of homes that will serve as security for future home financing in however the secondary market evolves. Our proposal is to simply provide existing inspections and/or enhance an in-depth and scored property inspection that would be reviewed by the appraiser and incorporated in the value determination.

The physical condition of a home always should be a fundamental consideration in determining the use of the home as security for a loan. But, this factor is likely to become increasingly important in the current market environment in which large numbers of homes are receiving highly variable maintenance, and may be affected by abandonment or similar factors that can lead to special conditions that impact security value.

Of course, no realty professional has greater knowledge, training and experience to discover problematic physical condition factors in a home than a trained professional home inspector. The typical home inspection involves an in-depth examination of all facets of the dwelling, including the related topography. The inspection generally involves 2.5-3.5 or more hours of time in which the inspector examines the roof, the foundation and all dwelling components. The reality of the appraisal process is that appraisers do not carry ladders, climb up on the roof and “crawl” into the crawl space, among other examination details.

We suggest that the type of in-depth home inspection that is performed routinely on most of the homes sold in the U.S. could be of substantial value to the GSE in making demonstrably improved assessments of property condition and quality. Frankly, while we have applauded your efforts to create initial data on these issues, we suggest that reliance upon the ad-hoc visual observations and the inability to readily correlate property condition and quality among sale comparables leave a significant gap in the current property valuation process.

We sincerely want to work with you to close this gap, and believe that a solid property scoring methodology we have been investigating could materially improve the risk and value assessment about the property serving as the collateral for the mortgage loan. What’s more, this revised process could be done at a lower combined cost than is routinely found in the marketplace today, would do much to build confidence in the new direction toward financially sound decision-making among policy-makers, the financial markets and the general public who are calling for improvements in housing finance lending processes and quality control.

ASHI is committed and ready to work with you and your staff to examine the possibilities and create a new foundation for mortgage lending and the secondary mortgage markets.

Sincerely,

Mr. Marvin Goldstein
2012 President
American Society of Home Inspectors (ASHI)