Housing Counseling in Rural America

© Housing Assistance Council, January 1997

Permission is granted ONLY to nonprofit community-based organizations to reproduce and/or adapt this document, and only for their own use.

FOOTNOTES

1.  At least three studies are underway at the time of publication of this report, and at least two of them include nonmetropolitan areas. First, a study is in progress investigating the effectiveness of pre-purchase homebuyer education programs under a contract or grant from Fannie Mae's Office of Housing Research. Researchers presented their background research at Fannie Mae's annual housing conference in May 1995. Second, six local organizations in the northwestern United States with funding from the Northwest Area Foundation have come together as the Mortgage Foreclosure Prevention Program Collaborative, whose preliminary findings are summarized later in this report. Both the Fannie Mae and MFPP Collaborative projects include counseling efforts in both urban and rural areas. Finally, one counseling agency staffer interviewed was working with a Ph.D. candidate who is researching counseling, but was unwilling to put the Housing Assistance Council in touch with her because she had previously asked him not to share her results with others. The focus and scope of that research are unknown.

3. Dr. Theodore J. Pinnock and David A. Norris, Turnkey III Counseling Program Review for Winston-Salem, North Carolina (Raleigh, NC: Center for Urban Affairs and Community Services, North Carolina State University, July 1971).

4. University of California, Preliminary Evaluation of the Section 237 Housing Counseling Program (1972), summarized in Department of Housing and Urban Development, Report to Congress on Housing Counseling(Washington, DC: U.S. Department of Housing and Urban Development, Office of Policy Development and Research, March 1983), pp. III-5 to III-8.

5. HUD-Region IX, Evaluation Report: Effectiveness of Homeownership Counseling (Program Planning and Evaluation, HUD-Region IX, December 1975).

6. Judith D. Feins, L. Dixon Bain, Jr., and John A. Kirlin, Results of the Prepurchase Homeownership Counseling Demonstration: Final Report (Washington, DC: U.S. Department of Housing and Urban Development, Office of Policy Development and Research, 1980).

7. HUD-Region IX, Evaluation Report: Effectiveness of Homeownership Counseling (Program Planning and Evaluation, HUD-Region IX, December 1975).

8. The overall study design, the findings regarding the fee-funded program, the findings on voluntary counseling programs, and a summary of the findings on the default program are reported in Organization for Social and Technical Innovation, Inc., A Study of the Effectiveness of Voluntary Counseling Programs for Lower-Income Home Ownership (Washington, DC: U.S. Department of Housing and Urban Development, May 1974). Findings on the default program are reported in Organization for Social and Technical Innovation, Inc., An Evaluation of the HUD Concentrated Default Counseling Program (1974), summarized in Department of Housing and Urban Development, Report to Congress on Housing Counseling (Washington, DC: U.S. Department of Housing and Urban Development, Office of Policy Development and Research, March 1983), pp. III-9 to III-10.

9. Department of Housing and Urban Development, Counseling for Delinquent Mortgagors: An Evaluation (Washington, DC: U.S. Department of Housing and Urban Development, Office of Program Analysis and Evaluation, August 1975).

10. Department of Housing and Urban Development, Counseling for Delinquent Mortgagors II: A Staff Study (Washington, DC: U.S. Department of Housing and Urban Development, Office of Policy Development and Program Evaluation, Division of Special Studies, January 1977).

11. National Urban League, Report of Home Mortgage Assignment Counseling, Training and Evaluation Program (1980), summarized in Department of Housing and Urban Development, Report to Congress on Housing Counseling (Washington, DC: U.S. Department of Housing and Urban Development, Office of Policy Development and Research, March 1983), pp. III-15 to III-18.

12. Morgan Management Systems, A Report on the Detroit Default Counseling Demonstration: An Assessment of Counseling as a Default Remedy (1980), summarized in Department of Housing and Urban Development, eport to Congress on Housing CounselingR (Washington, DC: U.S. Department of Housing and Urban Development, Office of Policy Development and Research, March 1983), pp. III-18 to III-20 and IV-6.

13. The Mortgage Foreclosure Prevention Program Collaborative, Preserving Homeownership: A Progress Report on Mortgage Foreclosure Prevention (February 1994); The Mortgage Foreclosure Prevention Program Collaborative, Preserving Homeownership: A Progress Report on Mortgage Foreclosure Prevention (February 1995).

14. Freddie Mac, Discover Gold Through Homeownership Education, "Introduction" (June 1995), p1.

15. Counseling for Delinquent Mortgagors (1975), pp. 37-38.

16. The president of the National Federation of Housing Counselors cites Delaware as a leader in housing counseling efforts. The state benefits as well from serving as the headquarters location for a number of "limited purpose" banks like credit card banks. These institutions are subject to the Community Reinvestment Act, which requires them to help meet the credit needs of their communities, but they do not make the type of mortgage loans or small business loans lenders often use to meet their CRA requirements. One way they satisfy their legal obligations, therefore, is by funding programs to help Delaware residents obtain the credit they need -- housing counseling programs, for example.

17. RHI 25th Anniversary Publication,1994.

18. Funding for the HIP program was in serious jeopardy in 1995 when this research was conducted, and RHI's contract with the Department of Public Welfare was threatened. RHI expected to receive only $80,000 through the HIP in fiscal year 1996.

19. NCLC's role in the contract is largely administrative: NCLC receives referrals from Freddie Mac and then passes them on to RHI. Similarly, NCLC gives RHI's recommendations for remediative actions to Freddie Mac.

20. RHI is also certified by Fannie Mae as a housing counseling agency. RHI receives this certification from Fannie Mae because of its participation in the CHAPA contract mentioned below. Fannie Mae recognizes certifications from the Massachusetts Housing Finance Agency, so RHI does not have to meet separate criteria to receive certification.

21. Through FY'93 HUD paid $35 per counseling unit, no matter the agency's costs. In FY'94 HUD still used counseling units, but paid a different amount that was based on the individual counseling agency's costs. In FY'95 the payment was no longer based on counseling units, but on the actual cost for one hour of service.

22. When this research was conducted in 1995, twenty organizations were full members and three were associate members. All were nonprofit 501(c)(3) organizations or housing authorities with broadly based, locally controlled boards, committed to quality construction and to serving low- and very low-income persons. Associate members may be still developing their boards, staffs, housing experience, and financial management and reporting capabilities, whereas full members must have demonstrated their qualifications in each of these areas. New Federation members must be associate members for at least one year before applying for full membership. Associate members may speak in Federation meetings but do not vote. FAHE has affiliate members as well, such as banks and organizations that do not produce housing.

23. A FAHE financial report dated June 30, 1995 shows that 572 loans had been made to date over the organization's history, and 446 were then outstanding. These loans, however, included some for rental housing and some to nonprofits, as well as over $10 million worth of homeownership loans.

24. Some of FAHE's member organizations provide pre-purchase counseling in other contexts as well. For example, the Randolph County (West Virginia) Housing Authority counsels families participating in a HUD-funded program enabling first-time purchasers to buy rehabilitated homes.

25. Frontier's director explains that almost the only existing housing in the area that meets code is RHS/Rural Development housing, and interested purchasers can apply directly to Rural Development to purchase it. Frontier does package Rural Development loan applications (without remuneration), although in calendar year 1995 it did only one because Rural Development had very few funds available.

26. In the early 1990s, Frontier had a housing counseling arrangement, funded by the Lilly Endowment, with Bethany House, a social service agency covering part of Frontier's service area. This project was the first venture into housing counseling for Bethany House, which previously had provided services such as clothing and emergency food. Under the agreement with Frontier, Bethany House took pre-application information, identified potential buyers, and provided a series of three homeownership education classes. An outreach worker employed by Bethany worked with individual families as needed on problem areas, financial or otherwise. In its early stages, this program seemed so promising that FAHE staff planned to use it as one of their models for member organizations. The cooperation between Bethany House and Frontier Housing did not last, however. The organizations eventually had a falling-out because their "philosophies" were different, says Frontier's director. The problem seems to have been at least partly a personality conflict between individuals. While their formal counseling arrangement has ended, Bethany and Frontier do still refer clients to each other as appropriate.

27. Early in fiscal 1995, RHS staff said they expected to administer some sort of questionnaire to participants in the pilot program, and to evaluate data on how many participants purchased homes, how many declared bankruptcy, and the like. By early fiscal 1996, however, it was clear that the program would not receive funding beyond the two-year pilot period, and staff was considering whether there would be any reason to try to compile a report of program results. Even if findings were reported, they would not include long-term results; since the two-year time period includes development, advertisement, and conduct of the local programs, it seems unlikely that many participants would have their mortgages for more than a year before the pilot would be evaluated.

28. While none of the interviewees suggested measuring mortgage dollars lost, scholars have pointed out that such a calculation would be more useful to lenders and investors than measuring default rates. "The proportion of dollars loaned that become losses in default varies by loan," and lenders should be concerned primarily with dollar figures. Roberto G. Quercia and Michael A. Stegman, "Residential Mortgage Default: A Review of the Literature," Journal of Housing Research 3 no. 2 (1992): 361, citing R.D. Evans, B.A. Maris, and R.I. Weinstein, 1985, "Expected Loss and Mortgage Default Risk," Quarterly Journal of Business and Economics 24:75-92. Since low-income homeowners can be assumed to purchase less costly homes, any given default rate on loans to low-income families is likely to be equivalent in dollars to a lower default rate on loans to those who can afford more expensive homes.

29. Recent research verifies counselors' understanding that mortgagors, perhaps particularly those with low incomes, do not always have enough control over their financial situations to make a carefully thought out decision about whether to default. Literature on mortgage defaults has long assumed that borrowers' decisions to default are influenced largely by the amount of equity they hold in their homes. Roberto G. Quercia and Michael S. Stegman, "Residential Mortgage Default: A Review of the Literature," Journal of Housing Research 3 no. 2 (1992): 341-79. A recent examination of panel data that indicate reasons for default among Section 502 borrowers in the mid-1980s found that default decisions were affected significantly by the ratio of mortgage payment to income and the occurrence of crisis events. Roberto G. Quercia, George W. McCarthy, and Michael A. Stegman, "Mortgage Default among Rural, Low-Income Borrowers," Journal of Housing Research 6 no. 2 (1995): 349-369.

30. While the 235/237 programs no longer exist (except for purchasers who received the Section 235 interest-rate reduction subsidy and are still paying those mortgages), using counseling to keep anyone in any subsidized housing program will incur the costs of continuing the subsidy.

31. The 1977 report gave the following example of the difference in these types of calculations. "In the first study the foreclosure rate among mortgagors not referred to counseling was 50%; the rate among those referred was 27%. Subtracting 27% from 50% yields the percentage point difference between the two groups. This figure, however, does not indicate the rate at which counseling is effective in avoiding foreclosure. Dividing the percentage point difference between the two groups by the foreclosure rate for the not referred group yields the rate, or percent, at which counseling is successful in avoiding foreclosures." Counseling for Delinquent Mortgagors II, p. 2.

32. The 1977 report gave the following example of the difference in these types of calculations. "In the first study the foreclosure rate among mortgagors not referred to counseling was 50%; the rate among those referred was 27%. Subtracting 27% from 50% yields the percentage point difference between the two groups. This figure, however, does not indicate the rate at which counseling is effective in avoiding foreclosure. Dividing the percentage point difference between the two groups by the foreclosure rate for the not referred group yields the rate, or percent, at which counseling is successful in avoiding foreclosures."Counseling for Delinquent Mortgagors II, p. 2.