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Borrower Education Endorsed

Mortgage bankers support standards

May 10, 2007


photo of Coco Salazar

Lenders endorsed a set of standards for professional mortgage counselors. The standards, intended to help borrowers avoid the expected onslaught of foreclosures, come on the heels of a set of servicer principles promoted by a U.S. senator and supported by most big mortgage bankers.

The National Industry Standards for Homeownership Education and Counseling were released and announced Wednesday by a group of leaders from lending and real estate institutions, community development organizations, mortgage insurance companies and the secondary mortgage market.

The standards will strengthen the professional credentials of more than 10,000 homeownership professionals currently working in the industry and aim at providing consumers an easy way to identify qualified educators and counselors.

Created by the National Advisory Council, the standards are a product of a two-year development process and represent the first time representatives from all corners of the housing industry have reached agreement on a set of benchmarks for the delivery of quality education and counseling to consumers nationwide, according to the announcement.

"Together with our partners we have developed national standards for homeownership education and counseling that will create a level of quality and consistency across the industry, advancing sustainable homeownership and the achievement of the American Dream for low- and moderate-income families," said Ken Wade, CEO of NeighborWorks America, in the announcement. "We hope these standards will enable families to make informed, responsible choices on the path to homeownership."

In addition to NeighborWorks, other members of the council include Bank of America, Chase, Citi, Countrywide Financial Corp., Wells Fargo, Fannie Mae, Freddie Mac, Federal Reserve Board, the U.S. Department of Housing and Urban Development, Mortgage Guaranty Insurance Corp., National Association of Realtors, National Council of State Housing Finance Agencies, National Council of La Raza, and University of North Carolina Chapel Hill.

The education and counseling standards follow last week's agreement by mortgage bankers, Democratic U.S. Senator Chris Dodd and consumer advocacy groups to the Homeownership Preservation Summit Statement of Principles, which were related to servicers and designed to mitigate the fallout from ballooning foreclosures.

Those principles called for servicers to contact borrowers prior to resets, seek to modify interest rates or amortization prior to the reset and leaving the introductory teaser rate in place for the life of the loan. Lowering loan balances was also among the principles -- which called for refinancing into prime mortgage refinances, when possible, and assistance from Fannie Mae, Freddie Mac and the Federal Housing Administration.

All but one of the companies that participated in summit have agreed to the principles, with Countrywide being the latest to agree, according to a May 3 announcement by Dodd. Of lenders listed for the National Advisory Council, Bank of America and Wells Fargo were not among those agreeing to Dodd's preservation principles.

Yesterday's 28-page report outlining the education and counseling standards encouraged organizations currently providing homeownership to adopt the national industry standards of code of ethics and conduct, noting that most "will find their programs meet or exceed the recommended benchmarks for industry standards and can readily adopt" them.

In agreeing to adopt best practices, housing education and counseling organizations and individuals agree to have core operating standards are competency through strong knowledge of homeownership; professional communication and organization skills; training educators and counselors at least 30 hours within 18 months of being hired; certification through passage of a comprehensive exam with at least 80 percent proficiency; continuing education of at least 10 hours annually; implementation of effective program operations; and signing and adopting the written National Industry Code of Ethics and Conduct policy. Recommended benchmarks within core operating standards include introductory level training during initial 6 months of employment for new educators and counselors.

In meeting performance standards, homeownership education must be done face-to-face in a group, while counselors should counsel on an individual, personalized basis, with the recommendation that these occur prior to a purchase contract being signed. Upon completion of homeownership education and counseling, clients should be able to demonstrate an understanding of preparing for homeownership, budgeting and credit management, financing and selecting a home; maintaining a home and finances, sustaining homeownership, and avoid delinquency and foreclosure.

Optimally, to achieve a desired expected outcome from home ownership education and cover content, delivery of pre-purchase curriculum is 8 hours but should not be less than 4 hours. The minimum standard for delivery of individual counseling should be at least one session of at least 30 to 60 minutes.

Educators should secure appropriate training in specialty topics such as financial literacy, reverse mortgage lending, and foreclosure prevention and may deliver this as group education. Specialty counseling services such as reverse mortgage counseling, foreclosure prevention, delinquency counseling should only be provided by counselors with the proper training and certification.

Homeownership education should utilize a comprehensive curriculum with pre-purchase education that covers assessing readiness to buy a home, budgeting and credit, financing and selecting a home, maintaining a home and finances. With those lessons loan prospects would be able to understand how lenders determine mortgage readiness and loan decisions, the loan and loan closing process, how to avoid high-risk loans and choose appropriate loan products, and the difference between repairs and improvement, and to contact a lender immediately should financial issues arise.

When offered, post-purchase education should cover community involvement, budgeting for homeownership, maintaining a home and home improvement, financing and sustaining homeownership, and avoiding and delinquency and foreclosure. The client outcome for this education would include calculating home equity and knowing how to manage it effectively and developing plans for preventive maintenance, and know about options to refinance or obtain home equity or improvement loans.

Minimum standard activities for homeownership counseling are gathering baseline information from client and conducting an accurate needs assessment; documenting the household income and expenses; determining household debt level; review client's credit report; identify credit challenges; determine and document household savings; develop a household budget; analyze budget and recommend modification; conduct various calculations including affordability based on income and debt; develop a written action plan; provide client follow up; make referrals for additional services needed by client; and provide the client with information of or referrals to delinquency/foreclosure services.

"The development of national standards for homeownership education and counseling together with a national code of conduct was spearheaded in a collaborative spirit by a variety of providers and stakeholders which recognize the great need to advance the relevance and professionalism of these services throughout the country," said Mike Haley, assistant commissioner of Minnesota Housing and National Advisory Council chair, in the announcement. "The ultimate beneficiaries will be homeowners that receive these services and become better equipped to enjoy successful, sustainable homeownership."

The Mortgage Bankers Association today announced its launch of an updated Home Loan Learning Center. Online at www.HomeLoanLearningCenter.com, the site "provides consumers with critical information on mortgages and the home-buying process."


Groups Agree on Foreclosure Plan
A group of mortgage bankers, a Democratic U.S. Senator and consumer groups have voluntarily agreed to a new set of principles designed to mitigate the fallout from ballooning foreclosures.

Coco Salazar is an associate editor and staff writer for MortgageDaily.com.

e-mail: [email protected]

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