While we continue to offer foreclosure help to financially struggling homeowners, HPF is also looking ahead to see what role we can play in helping to prevent another housing crisis. This is largely the reason behind an op-ed I wrote, recently published by American Banker, which explains that counseling homebuyers before they purchase a home increases the likelihood of them staying current on their mortgage. And current, financially healthy homeowners are good for everyone – the family who remains in their home, the communities that exist around them, and the banks that can lend to better-prepared borrowers.

For more information on the benefits of pre-purchase counseling, please read the op-ed on the American Banker website: “Pre-Purchase Counseling Benefits Banks and Homeowners.”

Whether you are dipping your toes into the housing market for the first time or are a homeowner who is struggling to make ends meet, housing counselors can help you develop a firm understanding of your financial situation and explain the different options and resources that may be available to you. Pre-purchase housing counselors can help prepare borrowers for their first leap into homeownership, while foreclosure prevention counselors can educate distressed homeowners on the various programs and initiatives available that may be able to help them avoid foreclosure.

In both situations, evidence suggests that the guidance of a housing counselor is crucial to success; according to NeighborWorks America, homeowners who receive pre-purchase counseling are one-third less likely to become seriously delinquent on their homes, while a HUD study found that 70 percent of distressed homeowners who completed housing counseling received a mortgage remedy.

HPF is also using National Homeownership Month to remind consumers that, despite significant improvements in the housing sector, there are still millions of distressed homeowners who continue to face myriad mortgage and financial challenges. Several mortgage relief programs have recently been extended to meet those needs, including the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP), both of which are available to eligible homeowners through December 31, 2015. Additionally, Fannie Mae and Freddie Mac recently introduced a new streamlined modification program for those who are severely delinquent on their homes.

We encourage homeowners with questions about these programs – or homeowners in need of mortgage and financial guidance – to call our HOPE Hotline at 888-995-HOPE (4673) to speak with a professionally trained housing counselor for free.

Real estate website Zillow yesterday released results from its Mortgage Marketplace Survey, which found that one-third of homebuyers do not fully understand the basic terms of a mortgage, like down payments, lender rules, and mortgage rates. According to the survey, around 25 percent of homebuyers incorrectly believe that they are required to close their loan with the lender that pre-approved them.  In reality, prospective homebuyers should shop around for a loan that fits their unique financial needs rather than always go with the first bank that pre-approved them.

The survey also reported that one in five – or roughly 14 million homeowners –believe that underwater borrowers are unable to refinance their home loans. This is simply not true – to date, a significant portion of the 2.3 million homeowners who refinanced their mortgages via the Home Affordable Refinance Program (HARP) were underwater. Information about HARP, which has been extended through December 2015, is available by speaking with an HPF counselor at 888-995-HOPE (4673).

In addition to the evidence provided in the Zillow survey, last week’s HPF blog post discussed a recent academic study published by the Yale Law Journal, which found that, when presented with mortgage documents, homebuyers’ eyes focus more closely on language that is easy to comprehend rather than on the more complicated information. This leaves homebuyers’ susceptible to agree to terms they don’t understand, which could potentially harm them in the long run.

As with any other important financial decision, HPF urges homeowners to do their homework before taking out a mortgage. Taking the time to fully understand the terms of your mortgage and what the details of your loan entail is one of the first steps to take on the path to sustainable homeownership.

A new academic study, reported on last week by Chicago Tribune ‘Homefront’ reporter Mary Ellen Podmolik, found that, when presented with financial documents, people’s eyes focus more closely on the language that is easiest to understand while glossing over the more complicated information. For example, a homeowner may decide on an adjustable-rate mortgage (ARM) after eyeing the initial low monthly payment, never fully realizing that the interest rate reset will result in a higher payment a few years down the road. An ARM reset, coupled with an unforeseen job loss or wage reduction, could challenge a homeowner’s ability to make their mortgage payment. This was the unfortunate scenario that put many homeowners in danger of losing their homes over the last few years.

The academics behind the study suggest that homeowners be required to pass a financial literary test before securing a mortgage – those who fail the test would then be required to undergo housing counseling. Counseling prior to taking out a mortgage, otherwise known as pre-purchase counseling and education, has proven to be an effective tool in preparing people for homeownership; in fact, a recent study found that those who completed pre-purchase counseling and education are one-third less likely to become seriously delinquent on their mortgage within two years of the loan origination. Similarly, another recent study from Freddie Mac found that pre-purchase financial counseling may reduce the delinquency rate of first-time homebuyers by an average of 29 percent.

These two studies, together with the newly released academic study, illuminate a greater need to help homebuyers understand the terms of a mortgage before they sign the dotted line. With this in mind, HPF urges all prospective homebuyers to do the homework and research they need to make the most appropriate mortgage decision in order to achieve sustainable homeownership.

This study is the latest of several that validate the effectiveness of foreclosure prevention and pre-purchase housing counseling (see here and here). With so much positive, independently analyzed and verified data highlighting the benefits of housing counseling, it makes the case that every homeowner should have access to a nonprofit counselor, whether they are in distress or just getting their feet wet in the home buying process. In fact, this most recent study even found that repeat homebuyers who complete pre-purchase counseling are able to avoid delinquency more than those who do not participate in a counseling program – proving that even the experienced can use an ally when considering various mortgage options.

The NeighborWorks release also touched on a report from the Bipartisan Policy Center’s Housing Commission, which said that “housing counseling can improve prospective borrowers’ access to affordable, prudent mortgage loans, especially for families that otherwise might not qualify or who may experience other barriers to mainstream lending.” The report itself mentions data from NeighborWorks’ National Foreclosure Mitigation Counseling program (NFMC), noting “counselors can also be an ally in the event of an unexpected financial change and can start the conversation with a lender about ways to help struggling homeowners.”

These studies do more than reiterate that housing counseling works; they also send the message that homeownership can still be a very viable option for those who are mentally and financially prepared. Many people who witnessed the housing market collapse are nervous about pursuing homeownership, fearing that they too might end up facing foreclosure or trapped in an underwater mortgage. These fears, while very real, can cause even the most prepared consumer to ignore the many advantages of homeownership, which includes building equity in your home, tax savings, and, on a more personal level, creating a home for your family and becoming a contributing member of a stable neighborhood or community. It’s important that prospective homeowners do a lot of research and take everything into consideration – the good and the bad – so that they can make a truly informed decision.

HPF currently offers free foreclosure prevention counseling to struggling homeowners and is working with several lenders and organizations on pre-purchase counseling programs that help homeowners before they sign on the dotted line. For more information, call 888-995-HOPE (4673) to speak with a housing counselor today.

There is ample evidence that both pre-purchase and foreclosure prevention counseling work: Ms. Podmolik cites HUD’s pre-purchase housing counseling study from earlier this year, which found that those who completed pre-purchase counseling were less likely to fall delinquent. I have also seen the success of pre-purchase counseling myself; as Executive Director of the Kansas City Neighborhood Alliance (KCNA), I oversaw the pre-purchase counseling of 15,000 homeowners and witnessed first-hand how counseling helps first-time buyers make educated decisions.

Each study and article promoting the efficacy of counseling further proves how meaningful it is for consumers to have access to independent, third party financial guidance. Consumers have told us that they have a strong preference for guidance provided by someone who is independent of their lender, broker, and realtor, and who is truly guiding their choices based on what’s best for them. Many thanks to Ms. Podmolik again for bringing pre-purchase counseling to the forefront.