In developing Homeowners Armed With Knowledge (HAWK) – a pilot program that gives FHA borrowers discounts on mortgage insurance premiums if they complete housing counseling – HUD rekindled a debate over the benefit of pre-purchase counseling.
Mounting research supports the theory that pre-counseling improves loan performance, and advocates say borrowers benefit more when third parties are not vested in whether they ultimately obtain a mortgage.
"Realtors and FHA lenders care a lot about borrowers, but it's a conflicted conversation because the Realtor and the lender want the deal to happen, and they prefer a bigger deal to a smaller deal," says Ellen Seidman, a former director of the Office of Thrift Supervision.
Some skeptics question whether the data confirms that better loan performance actually stems from third-party education, rather than from the analysis of consumer finances that accompanies it.
"Downpayment and borrower reserves/residual income ensure that there's a better opportunity for the long-term performance of a loan," argues Steve Calk, chairman and CEO of The Federal Savings Bank.
Meanwhile, Edward Pinto of the American Enterprise Institute points to the Department of Veterans Affairs, which employs a residual income test to qualify borrowers. The VA is one of the few loan sectors to enjoy consistent growth since the housing slump, and it outperforms the FHA.
"We know what works," Pinto insists. "Do an ability-to-repay based on residual income. That's going to work. It's going to protect the consumer at the same time."
Source: American Banker (12/03/14) Sinnock, Bonnie
© Copyright 2014 INFORMATION, INC. Bethesda, MD (301) 215-4688