The evidence is in: housing counseling for homebuyers significantly increases the likelihood that they will retain possession of their homes after purchase, according to two recent studies by the U.S. Department of Housing and Urban Development (HUD).
One HUD study followed first-time homebuyers for 18 months, through pre-purchasing counseling, home purchasing and homeownership. Of the 573 buyers observed, 58% originally sought counseling to take advantage of homebuyer assistance programs for down payment and closing costs (which their agents should have told them about). 72% of those studied completed pre-purchase counseling and 35% became homeowners. Only one of those homeowners fell behind on his monthly mortgage payment.
The second HUD study followed at-risk-of-foreclosure homeowners for 18 months, through foreclosure counseling. Of the 824 homeowners observed, 69% obtained a mortgage remedy and 56% brought their mortgage payments current. 70% of those who were less than six months behind on payments remained in their homes at the end of the study.
first tuesday take
We thank HUD, as do buyer’s agents, for being one of many agencies to provide evidence of the efficacy of financial literacy for buyers.
Previous research by the Federal Reserve Bank of Atlanta and real estate website Zillow has cemented the same rule: the informed are more likely than the uninformed to keep the homes they buy.
However, HUD’s findings showing the educational need for counseling “programs” reflects poorly on real estate brokers and agents. How many buyers’ agents have bothered to look into the content of these programs?
Good real estate agents, acting as they do on behalf of buyers as the gatekeepers to entry into the world of real estate, are not engaged for the sole purpose of locating property.
Their mandated professional duties to care for and protect clients include educating their buyers and guiding them through the consequences of their decisions, with wisdom gained through experience. Buyers must be led through the price negotiating process, the loan shopping process, the coordinated close of escrow, and beyond about the management of ownership and financing of a home.
Unfortunately, the behavior of far too many real estate agents during the early 2000s ran contrary to their advisory duty to their clients. In the heat of the housing boom, most listing agents failed to make even the most basic disclosures until the buyer was under contract and well on their way to closing. Further, many buyer’s agents egregiously injured their buyers by permitting adjustable rate mortage (ARM) financing so they would overreach in pricing, all to close one deal and move on to the next.
Contracts and loan negotiations are somewhat complicated, but well known to most agents remaining in the profession today. These issues require a high level of specialized knowledge among agents which most homebuyers do not initially possess. Absolutely there is a need for housing counseling. But agents must supply it, or prepare to be supplanted by “HUD-approved housing counseling programs.”
The era of the financially illiterate homebuyer
Real estate licensees and the unauthorized practice of law
Raising the bar of real estate advice
The rabbit and the greyhound: DRE disciplinary action and broker supervision
Holmes v. Summer: Dilatory disclosures and the damage done
Damage control: restoring public trust in real estate professionals
Re: “HUD Studies Show Housing Counseling Helps Families Prepare for Homeownership and Keep the Homes They Have” from U.S. Department of Housing and Urban Development