The East Baltimore neighborhood where Bette Ramsey lived with her adult daughter and 10-year-old grandson was a war zone, complete with drug dealers, gunfire, and crack houses. The Ramseys were desperate to live in a better environment.
Through their church they learned of an outreach program in Baltimore County that helped families like theirs buy homes. Bette had never even thought of owning a home. It seemed like a luxury enjoyed only by those with high-paying jobs and money in the bank. She and her daughter got by on her monthly Social Security check and her daughter’s modest salary from a daycare center. Bette and her daughter also worried about their credit, because they really didn’t have any; the Ramseys paid cash for everything. Yet, although they had little hope, they decided to at least try.
The Ramseys’ case is not unique. Every day, people who never thought owning a home of their own was possible find that they too can savor the dream of homeownership. With homeownership counseling, the intimidating and complicated home-buying process becomes less of a maze. Participants report that after attending a homebuyer education session they immediately feel more comfortable about what they are undertaking simply because they understand the process better. Real estate and mortgage terminology acquire meaning. And as the veil of confusion begins to lift, participants start to apply what they’ve learned to their own circumstances.
Who are the Service Providers?
Nonprofit organizations involved in home-ownership initiatives, as well as some state and local housing agencies, are the primary providers for housing counseling services. Fannie Mae, the nation’s largest purchaser of residential mortgage loans, has a long history of supporting local agencies that offer homeownership-counseling services. Their Directory of Home Buyer Education Providers lists over 1,200 organizations. People who contact Fannie Mae for assistance in working through the home-buying process are referred to local agencies where they can get the counseling they need.
The NeighborWorks® Campaign for Home Ownership 2002, for example, has been instrumental in bringing housing counseling to more than 230,000 people and creating 30,000 new homeowners since 1993. The Neighborhood Reinvestment Training Institute offers “training the trainer” courses that help hundreds of housing counselors each year strengthen their skills and their programs. Their nationally recognized publication Realizing the American Dream serves as the basis for the Institute’s homebuyer education training and development program.
Making Contact
Ideally, housing counselors want to connect with potential buyers as soon as they consider the prospect of owning a home. Bette Ramsey and her daughter were lucky – they were directed to counseling early in the process. They didn’t have to suffer the disappointment that could have come with finding the perfect house only to learn they couldn’t qualify for a mortgage, or worse, find themselves in over their heads with a house they couldn’t afford to keep.
But all too often, consumers contact these agencies only after they become involved in real estate transactions and discover they are not financially ready or that housing counseling is a requirement of their mortgage loan program. Neighborhood Housing Services of Baltimore counsels over 600 clients each year. Program Director Kevin Cleary says, “Unfortunately, most people don’t get counseling first. By the time we see them they’ve already signed a contract.”
Most home shoppers get their introduction to the home-buying process from a real estate agent. Open houses and the abundance of real estate ads lure consumers into shopping for houses and executing sales contracts before they know what is involved. The Realtor becomes their guide, often directing customers to loan officers, settlement agents, insurance brokers and other professionals – choices educated consumers can make for themselves. According to Cleary, “Realtors set the tone for the transaction and many are not aware of the benefits that counselors can bring to the process.”
Most counseling agencies do, however, receive referrals from lenders, usually customers who need homebuyer education certificates to satisfy the requirements of an “affordable” mortgage loan program. Churches, community organizations, advertising and word of mouth also direct people to counseling programs.
How It Works
Housing counseling services are offered in group workshops or seminars and in one-on-one sessions. Most agencies offer a combination of both. Usually the combined sessions require an investment of eight to 10 hours over several weeks, at the end of which customers receive certification that they have completed a homebuyer education program.
The Ramseys’ seminar gave them an overview of the home-buying process. Afterwards they made an appointment with a counselor for a one-on-one session, in which their readiness to purchase was evaluated. Most housing counseling agencies follow a similar process with new clients. The group sessions serve a number of purposes, not the least of which is confidence building. Prospective homebuyers often come to these sessions with preconceived notions. Some suspect that homeownership is not a possibility for them and expect to have those suspicions affirmed. Others fear they may be embarrassed when it’s discovered that their finances are in disarray. The Ramseys were typical of these types of consumers. They came expecting that everyone else there would be much more knowledgeable and prepared than they were.
The dynamics that occur in these group sessions are often quite powerful. Myths about homebuying are dispelled, and many who viewed themselves as hopeless realize there are many others in similar situations. These revelations lead to a sense of personal empowerment and restored hope, and the door opens to possibilities. The Ramseys were encouraged when they learned at the seminar, for instance, that many lenders consider “non-traditional credit reports” for customers with little or no credit history, and that they could use their strong rental and utility payment history to build a credit profile. Moreover, the Ramseys found out the county’s program could help them with down payment and closing costs.
In the confidential, one-on-one counseling sessions for clients who complete group sessions the counselor usually reviews the entire financial situation, including credit history, income and savings. Lisa Bouldin-Carter, executive director of Greater Cincinnati Mortgage Counseling Services (GCMCS), says her agency takes one-on-one counseling a step further. “Our agency takes a ‘total assessment’ approach, which includes discussing with the client their financial goals and dreams. It’s important that they understand where they are in terms of reaching their goals and what corrective action needs to be taken to get there.” The total assessment approach has had very positive results at GCMCS. In its 10-year history it has helped hundreds of families become homeowners, and its foreclosure rate is less than one percent.
The Ramseys’ counselor showed them what they would need to do to develop their alternative credit history and performed an affordability analysis that showed them the price range they could afford. Bette Ramsey was surprised to find that her monthly Social Security payment could be counted and, when combined with her daughter’s income, qualified them for a loan of up to $70,000. The counselor also helped them set up a budget that over the next 90 days could help them save the three percent of the sales price required as down payment. The county’s program and seller contributions would help, if needed. Their counselor’s recommendations and suggestions laid out a corrective “action plan” that would eventually lead them to their new house.
An important dimension of group counseling sessions is homebuyers clubs, which function as continuing support groups for people working to own homes. Members of the clubs are customers who have been through one-on-one counseling and are following a longer-term action plan. The meetings, held weekly for six to eight weeks, explore the home-buying process in much greater detail. The clubs also provide time for would-be homebuyers to share their experiences and stay motivated.
Long-Term Benefits
Homeownership remains a distant option in many communities in which people lack a history of or familiarity with it. Many people from low-income, minority and immigrant families grew up in homes their parents did not own, so knowledge of buying was not handed down. As adults they don’t naturally consider homeownership an option.
Counseling and education can help overcome this. Marcia Vacacela, director of Neighborhood Housing Services of New York City’s Home Ownership Center, says, “Most people have no clue about the responsibilities of homeownership, especially if their parents didn’t own their home. If they do happen to buy without the benefit of education and counseling, owning their home may not turn out to be the wonderful experience they may have thought it would be.” Vacacela says it’s important for consumers to know their rights and responsibilities when it comes to homeownership so they know how to protect themselves and their property. Homeowners need to be aware of the warning signs of delinquency and where to turn for help. Equally important is how to avoid predatory lenders and the potential loss of property some of these programs create.
Housing counseling can provide much-needed education and information for those who want to become homeowners. Informed people make better decisions and have a better chance of avoiding the crises of delinquency and foreclosure. Homeownership also has a stabilizing effect. Communities in which the majority of residents are owners historically have lower crime rates, less blight and more sustained economic growth.
Karen Murrell, senior director of targeted outreach programs at the Fannie Mae Foundation, which invests much of its grant money in housing counseling programs, explains, “We realize that housing counseling reduces the potential delinquency risk for consumers buying homes – especially the first-time buyer.”
The Future
Efforts are underway to create national standards for homeownership education and counseling that would help assure the quality of education families could expect to receive, regardless of the agency providing it. Murrell believes that a large part of the future of housing counseling is in developing measures that analyze the long-term effects of counseling. “When quantifiable systems are in place that measure the effectiveness of counseling, it will become even more valuable than it is now,” she says.
Today the Ramseys live in a quaint townhouse in Baltimore County. Bette Ramsey’s grandson, once confined to the house, can now play outside. Bette says, “None of this would have been possible if we had not gotten a lot of help along the way. I’m grateful that there are still people who care enough to help others find their way.”
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