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.
NCALL Research, Inc., Dover, Delaware The National Council on Agricultural Life and Labor Research Fund, Inc. (NCALL Research) is the only one of the case study organizations in this report that covers both urban and rural areas, so it provides an excellent opportunity for comparison between the needs of urban and rural counseling clients. Delaware has only three counties, running from the city of Wilmington in northern New Castle County to the noticeably more rural southern part of New Castle County (generally identified as the part south of the Chesapeake & Delaware Canal), to the urbanizing Kent County in the center of the state including the capital city of Dover, and finally to the primarily agricultural Sussex County. NCALL serves clients in all three counties, and sees a broad spectrum of their low-income residents because its housing counseling programs serve varied clienteles. Funding and Programmatic History NCALL was founded in the 1950s as a legislative advocate for better living and working conditions for migrant and seasonal farmworkers. Since 1976 the organization has focussed on technical assistance and training for housing for farmworkers and other rural residents
NCALL’s Rural Delaware Homeownership Initiative (RDHI) pre-purchase counseling program for RHS/Rural Development applicants began in 1986, and its Homeownership Education Program for bank borrowers in 1989. In 1989, community organizations’ Community Reinvestment Act challenges to the merger plans of three banks resulted in agreements to develop lending programs. In addition, the banks signed five-year contracts with counseling agencies, including NCALL, to prepare applicants for homeownership. The state housing authority and some local governments have developed programs to help lower-income borrowers qualify for the bank programs. They provide assistance with down payments, closing costs, interest rate write-downs, and the like. Before the initial bank contracts expired in 1994, NCALL embarked on an extensive and successful fundraising effort, focusing on other banks in the state. In fiscal year 1995, banks provided 65 percent of the budget for NCALL’s Homeownership Education Program for bank borrowers, with government agencies providing 35 percent. For fiscal 1996, NCALL expected to receive one-third more counseling funding than in 1995, with fully three-quarters of it from banks and one-quarter from government agencies, including $15,000 from HUD. The RDHI counseling program for Rural Development borrowers received about half its funding in 1995 and 1996 from the Delaware State Housing Authority, about 40 percent from banks, and the remainder from NCALL’s general operating funds. Rural Development has no funds available to pay for counseling. Some -- but not all -- of the mortgage assistance programs available to NCALL’s clients provide funding for NCALL’s work as well. NCALL currently receives $100 per loan closed using New Castle County’s Down Payment or Settlement Help (DPS) program for households with incomes at or below 80 percent of area median income. The City of Wilmington pays NCALL $7,500 per year plus $200 for each client earning less than 80 percent of area median income who closes a loan using its financing, with an annual cap to NCALL of $10,700. The income restrictions result, say NCALL staff, from the fact that the county’s and city’s programs are funded by HUD Community Development Block Grant (CDBG) monies, and CDBG activities must benefit persons earning under 80 percent of area median. Staff with both the county and the city acknowledge these amounts cannot possibly cover the actual cost of several hours of counseling per client, but say the amounts were established based on what funds were available in the budget rather than on actual costs. The state housing authority’s program (the only non-federal government assistance available in Kent and Sussex counties) does not provide any funding for the counseling it requires. State staff say the Delaware Federation of Housing Counselors have asked them to provide funding for Delaware counseling agencies and the request is pending while they wait to receive detailed information the Federation has not yet provided. Banks provide more significant funding for NCALL’s pre-purchase counseling, usually in lump-sum grants rather than per-closing fees. One bank CRA official says his bank discovered that a fee per approved loan arrangement violated the federal Real Estate Settlement Procedures Act, so they provide lump-sum grants instead, even though there is no guarantee that the number of clients referred back to them by the counseling agencies will be equivalent to the amount of funds granted. Mortgage companies do not fund NCALL’s efforts -- presumably because, although they fund a significant amount of mortgage lending in Delaware, they are not subject to the Community Reinvestment Act. Like other Delaware counseling agencies, NCALL also benefits from an unusual source of bank financing. The state, long known as a haven for corporations, more recently moved to establish itself as a center for “limited purpose” banks such as credit card banks. These banks are subject to the same CRA obligations as lending institutions but are prohibited from competing with them by offering mortgage programs or other loans. The current chairman of NCALL’s board is director of community development for FCC National Bank, a credit card bank that raised its CRA rating from the lowest category (needs to improve) to the highest (outstanding) in only four years by developing an aggressive non-lending community involvement strategy that includes making significant grants to NCALL and three other counseling agencies. NCALL has invested some of its own resources in establishing its credentials as a counseling agency. It received HUD certification as a pre-purchase counseling agency for the first time in 1994. Its counselors are all certified by the National Federation of Housing Counselors (NFHC), and have received additional training through the Cooperative Extension Service. NCALL staff say the training has taught them some useful techniques, but one of the counselors who works with RHS borrowers notes that training sessions always assume clients will obtain bank mortgages and so do not cover much of the information she must convey to her clients. On the other hand, the banks and agencies that refer clients to NCALL for bank borrower counseling believe the certifications are important. New Castle County, for example, requires its clients to obtain counseling from a HUD-approved agency with NFHC-certified counselors. An official with the county program believes that NFHC certification indicates a counselor is better qualified than, for example, a bank employee who is simply designated a counselor. The director of a state program adds that NFHC training means counselors will use the same curriculum, thus ensuring that clients will receive the same information no matter which agency counsels them. A bank CRA officer believes differences exist among counseling agencies nevertheless, because they cover the same topics differently. He states that NCALL is the best of the four agencies his bank uses (three of which are in the city of Wilmington), because it provides the most systematized and objective approach, is more willing to go to clients who cannot get to the counselors, and connects its counseling work with its other housing work. Six of the 17 persons on NCALL’s staff are full-time counselors. Three work with clients aiming to obtain bank mortgages, two counsel those applying for RHS/Rural Development mortgages, and one works with homeless families. Their programs are described in detail below. Housing Counseling Clients and the Types of Counseling Provided NCALL provides three types of housing counseling: pre-purchase counseling for those who will receive mortgage loans from banks, pre-purchase counseling for those receiving financing from RHS’s Section 502 program (administered by USDA’s Rural Development agency), and counseling for homeless families living in shelters. Both types of pre-purchase counseling are available to persons living anywhere in the state, while funding restrictions limit the homelessness counseling to Kent County. Both types of pre-purchase counseling are aimed at first-time homebuyers. Eligibility for the available loan programs determines eligibility for NCALL’s counseling. Families receiving counseling on the RHS Section 502 program must intend to purchase a home in an area designated “rural” by RHS. (There are RHS-eligible areas within all three of Delaware’s counties.) Those in the RHS program generally have lower incomes. Moderate-income families (up to 115 percent of area median income) are placed in the bank borrowers program. Very low-income households (up to 50 percent of area median income) are usually eligible only for RHS funding. Low-income families (50 to 80 percent of area median income) are counseled about both programs, or may participate in both while pursuing all possible funding options. The income differences between the two programs manifest themselves in other ways as well. For example, spring is the busiest time of year for the bank borrowers counseling program, because clients are enthusiastic about using their income tax refunds towards purchasing homes. More calls come from the RHS/Rural Development borrowers in the winter, however. NCALL counselors believe that cold conditions and high utility bills spur low-income people living in substandard housing to investigate ways of finding better homes. The bank borrower clients tend to be better educated and better able to use written materials effectively. A counselor remembers one client in that program who was entirely illiterate and could not sign his/her name. The RHS/Rural Development program has counseled several illiterate clients. Bank borrower clients are much more likely to be working with realtors. NCALL and Rural Development staff speculate this is not only because there are realtors and more bank borrowers in urban New Castle County, but also because realtors are less likely to want to work with clients seeking RHS/Rural Development financing because of the lengthy approval process. Both programs have seen an increase in clients who do not speak English. The Spanish-speaking populations have increased recently in both urban New Castle County and agricultural Sussex County. Haitian farmworkers have begun to settle in Sussex County as well. NCALL has translated some of its counseling materials into Spanish. To date, the agency has been unsuccessful in finding qualified counseling staff who speak Spanish, but has found that non-English-speaking clients generally bring their own translators to sessions. Usually family members serve as translators. Cultural differences pose other problems as well. For example, banks request written proof of the source of borrowers’ down payments. NCALL counselors say this becomes a problem for applicants from Asian cultures where an extended family pools its resources and then makes them available to whoever needs them. These applicants cannot prove their down payments are theirs in the way the banks want them to be. In either pre-purchase program, clients receive individualized counseling for as little as three months or as long as two years, depending on need. Counselors in both programs say clients may begin the program with “an attitude.” Clients may be attending counseling only because it is required to qualify for the mortgage they hope to obtain, and may see it as an obstacle to be overcome rather than a help. Counselors work to gain their clients’ trust, and believe they almost always succeed. They cite specific instances of would-be borrowers who approached counseling as a hurdle and eventually admitted to the counselors that they appreciated what they had learned. Clients’ attitudes may be affected by differences between spouses as well. Like most of the housing counseling organizations contacted for this study, NCALL does not offer relationship counseling for its clients. As they talk about their work, however, NCALL counselors realize they do deal with their clients’ communication issues. When they ask a couple to prepare a budget and gather information about their financial situation, they may be forcing the couple to communicate about their finances for the first time. They describe wives who do not know how much their husbands earn, husbands who pay all the bills and must approve their wives’ purchases, and, particularly among deeply religious couples, ingrained acceptance of this lack of mutual understanding. NCALL’s counseling for homeless families touches more directly on relationship issues, although intensive work in that area is provided by a separate social service agency serving the same clients. NCALL rarely sees its pre-purchase clients after their closings. Staff are aware of the pitfalls new homeowners are likely to encounter immediately after they purchase, so before purchase NCALL provides clients with information about maintaining their homes and maintaining their credit ratings by, for example, not giving in to the temptation to purchase new furniture for their new homes. The counselor running the bank borrowers program has added information about post-closing events based on questions from previous clients on topics such as dealing with property tax bills or why the monthly payment amount changes on a fixed rate loan. Counselors do not have any way to measure how much of this information is absorbed, although one RHS/Rural Development counselor believes her clients work so hard to get their homes that they are not likely to jeopardize their purchases. They have considered sending flyers to borrowers after closing, or developing a newsletter. Staff time has not been available for those efforts, however. Pre-Purchase Counseling for Bank Borrowers Several of Delaware’s major banks have developed mortgage products for first-time homebuyers with low incomes. State and local government agencies have established programs (some specifically intended to enhance Delawareans’ ability to participate in the bank programs) that provide second mortgages for down payment or closing cost assistance, or interest reductions through mortgage revenue bonds. The state also has a program to purchase mortgages originated by others. The banks and government agencies all require program participants to obtain pre-purchase counseling. NCALL is one of at least five agencies in the state that offers such counseling. NCALL usually does not advertise its pre-purchase counseling programs. In the past, when it has advertised its services, the organization has been inundated. Staff reports there is a surge of calls whenever the state announces it is issuing bonds to raise funds for first-time homebuyer programs. (Recently, however, bank programs offer lower interest rates than the state’s purchase programs.) Most often, clients are referred to the program by former clients, banks, Rural Development, other counseling agencies, and the housing program offices of the city of Wilmington, New Castle County, and the state. Staff who answer the phone ask callers about their income levels to determine their eligibility, and tell them when upcoming group workshops are scheduled for bank borrowers or RHS borrowers, as appropriate. NCALL counselors may later advise individual clients to switch from one of the programs to the other, as their circumstances warrant. (Counselors report, however, that some clients are determined not to apply for RHS loans, apparently believing that the program involves more paperwork than a bank mortgage.) Some clients may work with both programs until they and the counselors can determine which will provide them with the best mortgage arrangement. The pre-purchase counseling process begins with a group workshop. These two-hour workshops are held twice a month, usually once during an afternoon and once in an evening. NCALL is considering adding a regular third session specifically for New Castle County, where the more dense population leads to a heavier demand. Presently, an average of 25 families attend each workshop session. The workshop is presented by NCALL staff and outside experts such as a realtor, a home inspector, and a bank loan officer. The topics covered include budgeting, “hurdles to homeownership,” advantages and disadvantages of homeownership, a review of unfamiliar terminology, types of loans, and housing options. The presentations use a slim packet of 20 pages of written materials and forms. Many were prepared by NCALL staff. They include a list of “home purchase terms” with definitions; an explanation of criteria used to qualify a borrower for a loan; a questionnaire entitled “advance preparation for homeownership” that asks about savings, income, credit, debt, and “comfort level”; savings tips; a budget evaluation form; information about credit reports and a form used to apply for a free credit report; and the like. NCALL counselors have reviewed materials prepared by others but believe they are not appropriate for NCALL’s clients. Fannie Mae’s recently published counseling materials, for example, require a level of “math abilities” few of her clients possess, says NCALL’s primary bank counselor. After the initial workshop, all sessions are individual meetings between family members and an NCALL counselor. At the end of the workshop, clients are asked to call the office for an appointment if they wish to pursue the home purchase process. They are told they should bring to the intake interview their last two years’ income tax returns and W-2 forms, their two most recent pay stubs, the budget worksheet provided at the workshop, and a credit report. NCALL’s bank borrower counseling program anticipates at least four individual meetings of about two hours each, and staff have developed a standard packet of information for each: an intake interview, a financial analysis session, a pre-submission session, and a pre-settlement session. The actual number varies depending on the client’s needs. If the information a client brings to the intake interview shows that they are not financially ready for homeownership, the counselor begins working with them immediately on budgeting and credit issues. If they are mortgage-ready, the counselor will help them determine their price range and financing options and will discuss the home search process with them -- information that is not yet appropriate for clients with budget or credit problems. NCALL counselors attempt to provide whatever information and “hand-holding” clients need as they improve their credit and search for a home. They cannot do everything, however. They describe their pre-purchase counseling efforts as education that includes credit repair. Clients who need extensive assistance with consolidating loans, reducing large debt loads, and the like are referred to a consumer credit agency. Counselors often work closely with the bank from which a client will receive a mortgage. NCALL’s most senior counselor finds her experience in a previous job processing loans for a bank to be invaluable in knowing where banks can be flexible for her current clients. For this reason, NCALL tries to hire counselors with mortgage experience, or at least with experience in banking. Each counselor sees about two clients per day, four days a week, and spends the fifth day on paperwork. At the end of fiscal 1995 (September 30, 1995), NCALL’s records showed the organization had about 1,000 open files of bank borrower clients who had not yet closed their loans. During fiscal 1995, NCALL received 873 inquiries about bank counseling, and began working with 561 new clients. NCALL clients submitted 268 mortgage applications, and closed 264 mortgage loans. (This does not mean that all but four of the applicants closed; some of the 264 closings were clients who began their counseling or applied for a loan in previous years.) Of the 264 who closed, 103 (39 percent) were female-headed households, 55 (21 percent) were male-headed households, 90 (34 percent) were couples, and 16 (6 percent) were unmarried individuals purchasing together. Sixty-seven percent had incomes at or below 80 percent of median. More than half of NCALL’s bank borrower clients come from New Castle County, including the city of Wilmington. Most of the remainder live in Kent County. First State Community Action Agency provides pre-purchase counseling in rural Sussex County, so NCALL receives fewer clients from the southern part of the state -- in fiscal 1995, only 4 percent. While NCALL has no organized post-purchase counseling effort, occasionally lenders refer clients back to NCALL for assistance if they become delinquent in their mortgage payments. New Castle County, for example, notifies NCALL if a client who received county assistance defaults on his/her mortgage. On the other hand, one banker interviewed for this study explained that privacy concerns prevent his contacting NCALL directly about delinquent borrowers. He says he is allowed -- in fact, required -- to provide such borrowers with a list of available counseling resources, but cannot ask NCALL to intervene. NCALL staff have found that when counseling begins, and how long it lasts, is an area of some disagreement among the parties involved in helping lower-income families to purchase homes. Some banks and government housing agencies refer clients for counseling before they sign a contract to purchase a home, and others do not require counseling until after a contract is signed (but before closing). NCALL staff believe strongly that beginning after a contract is signed is too late for counseling to be most effective, and report that these clients often say they wish they had obtained much earlier all the information presented in the counseling process. The director of the state mortgage assistance program explains that if homebuyers begin counseling before they have a contract, banks complain that counseling slows down the purchase process. She will not consider eliminating counseling to save that time, however, believing it to be essential for many low-income buyers, but unlike other government agencies she will accept in-house counseling by bank staff. In contrast, at least one banker states that he is not concerned about the amount of time counseling takes. He contends that counseling should occur earlier because it is most useful for those who are not yet ready to buy -- in other words, those who would not yet qualify to sign a contract -- because they need help improving their credit rating, saving for a down payment, and the like. Another reason the counseling process delays loan closings, according to some bankers and government agencies, is that most of the counseling organizations in the state have waiting lists. So far, NCALL has been able to avoid establishing a waiting list and can handle all the clients who request its assistance. One banker states that his choice of a counseling agency for a client may depend on which agency has the shortest wait time rather than which one is most convenient geographically. Similarly, the state’s program director says she may recommend a lender for a client based on whether the lender has in-house counseling available to save time. To accommodate the need and reduce costs, NCALL counselors report, some of the other counseling agencies in the state are attempting to reduce the amount of staff time spent on counseling by shifting from individual counseling to classes. Some hold all-day sessions on weekends. The City of Wilmington is considering nudging agencies towards having more group sessions. NCALL’s counselors strongly believe that counseling should be tailored to clients' individual situations, however, and that therefore most topics cannot be covered effectively in classes. In addition, they find that clients are not comfortable asking questions in groups. They are considering turning their final, pre-settlement session into a class, however. The general topics covered in that class -- maintenance, homeowner responsibilities, insurance, crisis management, and mortgage prepayment -- might be effectively presented in a group, counselors think, and fewer personal questions arise about these issues because they have not yet become relevant to clients’ lives. Pre-Purchase Counseling for RHS/Rural Development Borrowers (Rural Delaware Homeownership Initiative) Potential Rural Development borrowers are usually referred to NCALL by the agency itself. Rural Development’s community development manager for New Castle and Kent Counties says her agency screens callers to determine their eligibility and level of knowledge about the Section 502 purchase program. Most callers do not yet know enough, and are referred to NCALL rather than being rejected as potential borrowers. NCALL staff is comfortable with this, preferring to help clients determine their eligibility rather than have Rural Development reject them first. Rural Development has asked NCALL to offer workshops on budget and credit counseling issues also, without including information about obtaining a Rural Development loan, NCALL staff say. While NCALL sees a need for this kind of training, and a shift in lender emphasis in this direction, it has not yet been able to provide such sessions. The steps in the current counseling process are essentially the same for Rural Development clients as for bank clients, although the content and approach are different in ways tailored to the needs of this clientele. Like the program for bank borrowers, the Rural Development borrowers’ counseling begins with a group workshop. NCALL usually schedules two workshops each month, usually in the evening, and an average of 15 families attend each session. When families register by phone, NCALL staff sends a summary of the Section 502 program and a questionnaire for basic financial information, asking them to fill it out and obtain a credit report before the workshop. These workshops are shorter than those for the bank clients, lasting from one hour to an hour and a half. Usually an NCALL counselor is the only speaker. The presentation pace is slower than at the bank borrowers’ workshop. Because Rural Development has only one mortgage product, there is no need to explain types of loans. Instead, this workshop focuses on how Rural Development determines income eligibility and what types of houses are eligible. Most Rural Development borrowers purchase new homes, so information about the construction process is also covered. NCALL presents less written material than at the bank borrower workshops, having found that paperwork is not only not helpful for Rural Development clients, but often intimidates them. After the workshop, clients work with a counselor on an individual basis, as in the bank borrower program. They begin by reviewing their credit and budget situations. Like first-time homebuyers everywhere, particularly those with low incomes, many of them have credit problems. NCALL counselors say they may also suggest that clients could increase their incomes by applying for assistance programs they may have avoided, such as Food Stamps. They try not to do things for their clients, but rather to provide families with the information they need to apply for programs or to arrange for payment of overdue bills themselves. They may refer people to social service agencies for assistance, or contact creditors directly when that seems necessary. NCALL staff do work directly with clients to prepare applications for Rural Development funding, review all the required paperwork carefully with the clients, and then accompany clients to interviews at Rural Development offices. All too often, counselors say, Rural Development does not have mortgage funds readily available. The counselor’s role then focuses on helping clients wait. Usually clients “are good,” says an NCALL counselor. Sometimes, however, clients may need to be advised not to change their debt load by purchasing a new car. Their enthusiasm for the purchase process may need some support as well. When funds are available and a house is located, an NCALL counselor attends the loan settlement with each client. Borrowers hire settlement attorneys, interviewing them using questions suggested by the counselors. Throughout this process, NCALL staff give Rural Development borrowers much less written material than they give bank borrowers. Over the several years she has been in her job, NCALL’s primary Rural Development counselor has reduced the amount of paper she uses. She firmly believes that her clients learn a great deal from her counseling program and understand what they are told, but that they simply do not learn well from reading and, in fact, are intimidated by forms and papers. Rural Development clients’ situations are affected by other issues as well, NCALL counselors say. For example, they have transportation problems more often than the slightly higher income bank clients, and rural Delaware -- like most rural areas -- has no public transportation system. While the bank borrower counselors will occasionally meet clients outside NCALL’s offices, the Rural Development borrower counselors do so on a regular basis, and also provide transportation to clients otherwise unable to get to appointments. Rural Development counselors find their clients are often more comfortable when counselors come to their homes than when they come to the organization’s office. The Rural Development counseling staff maintain demographic data on their clients, but they do not track persons who attend initial workshops. They estimate that slightly more than half those who attend a workshop will then schedule an individual session. In fiscal 1995, NCALL worked with 363 would-be Rural Development borrowers: 26 in New Castle County, 182 in Kent, and 155 in Sussex. Seventy-four applications for Section 502 loans were submitted, although some of them were for clients who first contacted NCALL in an earlier year. Thirty-eight were approved, and 30 loans closed. Half of these 30 new homeowners were married couples, and half were single individuals or single parents. Fully 70 percent had very low incomes, with the lowest being $8,225. Sixty percent were white and 40 percent black. As of October 1, 1995, there were 69 families in the Rural Development application process. This number was much higher than previously, NCALL staff explained, because Rural Development was allowing families to apply for a loan before they found a site on which to construct a house. The process would change further when new regulations for the Section 502 program took effect in October 1995. Among the many modifications in these regulations was a change in the way eligibility is determined. Each of the 69 families pending would be required to re-qualify under the new rules. NCALL counselors estimate they spend more time with the average Rural Development borrower than with the average bank borrower. They do not track hours spent per client. Therefore, while they can state that it often takes a year to get a client to loan closing, they are not sure how many hours they spend with that client during the year. Each of NCALL’s Rural Development counselors sees about 15-25 clients per month. NCALL provides financial assistance to a few of its Rural Development borrowers, as well as counseling. The organization has its own small revolving fund, and can loan a borrower up to $500 to cover Rural Development closing costs. NCALL has found that borrowers are slightly less likely to keep current on repaying these loans than on their mortgages, however. Currently, three out of five outstanding loans are delinquent, and one has been delinquent for five years. Staff continue to work with borrowers to revise their repayment plans, but have not gotten tough with anyone. Counseling for Homeless Families NCALL’s counseling for homeless families is fundamentally different from its pre-purchase counseling programs. This “New Start” program is funded by a subcontract from a social service agency called People’s Place II, using federal Community Services Block Grant funds to assist families in crisis. People’s Place II manages the overall program, providing case managers and non-housing-related counseling for the client families. One of NCALL’s staff counselors works full-time with the families to determine their housing goals and help them plan ways to achieve those goals, including budgeting skills and debt management. The program serves about 60 client families each year. Because the program is not open to the general public, NCALL does not advertise its availability. (Many potentially eligible families do not even get into the program; the participating shelters turn away two families for every one they serve.) The client families have all agreed to participate in the program. They are all living temporarily in one of two family shelters in Kent County, or in a shelter for battered women in Sussex County. All have children (an eligibility requirement for the program), some are two-parent families, and many are female-headed families. As would be expected, all have very low incomes and are in crisis. NCALL staff report that many have histories of substance abuse, and some have experienced spouse abuse. The primary cause of their homelessness, however, NCALL staff believe, is a shortage of jobs and affordable housing. The organization prepared an inventory of available rental units, and determined that most cost more than these families can afford. The shelters all provide housing for 30 days only, and a state program provides funds for an additional 90 days in a motel. Necessarily, then, finding some longer-term housing situation is a primary focus of NCALL’s work with these clients. NCALL’s counselor and the People’s Place II case manager help each family prepare an agreement establishing goals they want to achieve. People’s Place II works with them on improving their income, obtaining education, dealing with any substance abuse issues, and the like. NCALL’s counselor works with them on their housing goals and financial management skills only. The first step towards achieving housing goals is meeting with the family to prepare a “housing history.” Their history impacts their current eligibility for some types of assistance. For example, someone who has been evicted from public housing will have a very hard time finding a place to live. Some emergency funds are available from sources like the Salvation Army but cannot be used a second time by a family that has received those funds in the past year. Based on their history and needs, the counselor tells them what kinds of assistance they are eligible for, and how and where to apply. Unlike NCALL’s pre-purchase counseling, the New Start program provides clients with few written materials. NCALL has prepared written resource materials for program participants, and uses them as staff believes to be appropriate. The counselor does give clients a list of questions to ask potential landlords, and a form for keeping track of contacts with potential landlords. She also uses a simple budget form and list of savings goals based on the pre-purchase materials. Other differences from the pre-purchase programs stem from the clients’ different needs. The New Start clients may not have access to a telephone, for example, so they sometimes use NCALL’s office phone. They are more likely to lack transportation than the pre-purchase clients, so NCALL staff travels to meet them more often. Support groups seem potentially more useful for these clients, so staff have considered establishing them, although they have not yet done so. Generally, issues not strictly related to housing arise more often in counseling these clients. While this program began as a counseling-only effort, it has led NCALL into a search for transitional housing, as staff have discovered there is a dire need for such housing while these families work towards permanent housing. People’s Place II and NCALL have available a total of six transitional units, three of which were developed by another organization with NCALL’s assistance. Finding operating funds for this type of unit is very difficult, NCALL staff report. NCALL also has often successfully paired families with churches. The church provides direct financial assistance, perhaps paying part of the rent for an apartment, paying utility bills, or purchasing items like diapers that are not covered by food stamps. People’s Place II itself has a small fund available to provide grants to homeless families to cover expenses like a security deposit for an apartment. Each client family’s case manager from People’s Place II keeps in touch with the family over time. When housing issues arise in the future, the case manager refers families back to NCALL. Thus there is no specific end point in NCALL’s relationship with these clients, unlike the finality usually provided by loan closings for pre-purchase counseling clients. NCALL has found a number of these clients need extensive budget counseling after they find permanent housing, and that serving their needs precludes accepting large numbers of new clients. Measuring the Success of Housing Counseling Programs Extensive discussions with individuals interviewed for this case study yielded no clear agreement on how to measure the success of housing counseling programs. There was consensus that success is hard to quantify, but not on how best to approach a quantification. Closings, defaults, and delinquency. When NCALL applies for financial support for its pre-purchase counseling programs, it claims to be successful based on the number of loans its clients have closed. Interviewees often suggested the number of closings as one possible measurement. Even one who criticizes it seems to rely on it: a program officer in New Castle County’s housing office downplays the usefulness of measuring closings -- stating that his office and the counseling agencies are more concerned with whether counseling has any positive impact on the clients -- but his program reimburses counseling agencies for each loan closed, and does not provide funding for counseling clients who do not purchase. Bankers, too, agree that the number of closings is an important measure, although none of the three bankers interviewed would gauge the success of counseling based on closings alone. For example, despite the concerns of some (discussed above) about counseling slowing down the purchase process, one banker suggests that those who spend the most time in counseling are those who benefit from it the most. If a buyer were ready to purchase immediately, counseling would be a quick process. If more work was needed, the time would be longer. Therefore longer counseling might represent greater success. For another quantifiable measurement of success, one banker says he likes to cite the dollar amount of the new mortgage loans represented by the closings. He also looks at the dollar amount of loans leveraged with first-time home buyer programs. He calculates the success of his bank’s counseling grant to NCALL by assuming that his bank accounts for the proportion of NCALL client’s closings represented by the proportion of NCALL’s total counseling budget provided by its grant. In addition, of course, bankers track default and delinquency rates for their “CRA loans” to first-time borrowers who received pre-purchase counseling. One reports that since 1989 the default rate for these loans has been about the same as for other mortgage loans, but better than the national rates for FHA and VA loans. Another says that at 3.5 to 5 percent, his CRA loans have a higher delinquency rate than the 2 percent for other mortgages, but points out that the national FHA delinquency rate is higher. It is difficult to assess counseling’s success based on default and delinquency rates, however, because, as several interviewees note, many factors besides counseling affect whether purchasers succeed as owners. Loss of a job or a change in family situation can affect even the best-prepared buyer’s ability to keep making payments. As a state staffer says, any attempt to use default and delinquency rates as a measurement would have to include a way to take these other possible factors into account. In addition, NCALL staff point out that counseling may lead to another kind of success mixed in with a delinquency problem: they recently received a request for help from a former counseling client whose husband had died, leaving her unable to meet her payments. Because she had received counseling, she knew that help was available and that it would be useful to seek that help promptly. Foreclosures avoided. NCALL’s chief Rural Development counselor believes the number of Rural Development foreclosures has decreased since the agency started referring would-be borrowers to NCALL for counseling. Rural Development’s local community development manager agrees that the number of foreclosures avoided by counseling could be a good indication of counseling’s success. She points out, however, that it could be very difficult to implement such a measure. How could anyone know how many foreclosures would have occurred in the absence of counseling? No agency or office in the business of improving housing conditions would be comfortable withholding counseling from a control group matched to a group that did receive counseling. Number and quality of applications. NCALL staff and Rural Development agree that the number of closings would be a wholly inappropriate measure of success for Rural Development borrowers. The number of Section 502 closings is limited by funding constraints, so not all qualified applicants can close on a loan. One NCALL staff person believes the number of Section 502 applications would be a better measure of success for her Rural Development clients. Rural Development’s local community development manager suggests the quality of the applications would be the best measure for her. The more prepared the applicant, the less work her office must do. She believes NCALL’s counseling program is invaluable in making the 502 program work in her area. The applications from NCALL clients are better, she states, and her office must do less work to prepare those applicants for purchase. In fact, she is so confident about NCALL’s counseling’s usefulness that her office has not tried to measure it. An official at one large bank also gauges success by application quality, although his bank does not have Rural Development’s financial constraints. He can tell whether an applicant has been well counseled based on their application, he says -- for example, whether they include all the appropriate documentation. Number of clients. An NCALL staffer suggests that a counseling program is successful if it has many clients. A variation on that theme is suggested by a banker who says in the first year of his bank’s program 800 interested buyers received counseling but only 150 of them closed loans. He believes that indicates the counseling agency (NCALL was not involved with that bank’s borrowers at that time) did a good job screening out unqualified people so the bank did not have to spend time working with them. In other words, sometimes a low ratio of closings per counselees might constitute success. Informed consumers. Learning to seek help and other positive psychological impacts of counseling can constitute “success” as much as closing a loan does, several interviewees state. They agree with one NCALL staffer’s statement that counseling enables people to make informed decisions, and for some the best decision is not to buy. In addition, NCALL staff believe that counseled clients are better educated consumers of housing and other credit products. They see many clients who have made credit purchases based on monthly payment amounts without understanding how much interest rates can add to the total amount repaid, and without realizing they can comparison shop for favorable rates. Counseling teaches them to find ways to avoid overpaying on interest for purchases such as furniture. An NCALL staff person suggests it would also be interesting to use credit agency data to examine ways in which pre-purchase counseling might have affected clients’ currency with paying bills, their credit ratings, and the like. Increased bank business. One banker proposes the number of referrals could serve as a measurement of success. When counseling agencies refer interested buyers to his bank’s program, the bank benefits from the agencies’ work, because these borrowers would not necessarily approach the bank directly. In addition, counseling leads some clients to become bank customers for the first time -- whether or not they purchase homes. It is not uncommon for low-income families to pay their bills in cash or with money orders until counseling teaches them it is important to have checking and savings accounts, according to NCALL staff. Asked about this as a measurable result, a banker who apparently had not previously considered the possibility agrees that it is likely to be true. He suggests that some clients also probably become mortgage customers later, including some who obtain market-rate mortgages when their incomes improve. Client perceptions. Two interviewees suggest surveying borrowers to see what they believed they learned from counseling. One proposes periodic questionnaires, perhaps 30 days, six months, and two years after closing. Since the information buyers need changes over time, and their retention of material presented in counseling presumably diminishes over time, it could be useful to know what they remembered and found helpful as time passed. New Castle County did survey borrowers who closed mortgages using the county’s down payment or settlement assistance programs. The survey, completed in August 1994, includes clients who closed between June 1991 and June 1994, and asked about a number of aspects of the program including housing counseling. Surveys were mailed to 411 borrowers, 168 of whom returned their questionnaires. The survey is not representative of Delaware counseling clients generally, of persons who attempted to use the county program and received counseling but did not close on a mortgage, or even of those who did use the program. About a quarter (23.8 percent) of the respondents had obtained counseling from NCALL, and the rest from three other agencies. Almost all respondents (94 percent) stated they were satisfied with housing counseling. Even more -- 97 percent -- were satisfied with the county program, and the satisfaction with counseling seemed closely connected to the fact that it was a requirement of the program: a large majority (82.5 percent) said that housing counseling helped them overcome barriers to homeownership because it resulted in their obtaining a loan from the county program. That multiple choice question listed several other ways in which counseling might have helped overcome barriers to homeownership, but “provided confidence” was a distant second response (7.8 percent) and “budgeting and saving” an even more distant third (3.6 percent). Over 90 percent stated their counselors were “knowledgeable and adequately prepared,” and that “the steps to securing a mortgage and locating a home [were] outlined to you sufficiently.” Equal numbers of respondents would and would not have gone through counseling if there were no county grant involved, and one-fourth said they would pay $100 for counseling. In late 1995 New Castle County was undertaking a new survey to determine the current situations of the homeowners who sold homes to participants in the county’s program. Their findings could point towards the possibility that counseling helps start families on an upwardly mobile track. A banker, probably unaware of the county study, notes separately that counseling may have benefits to the community at large far beyond its benefits to individual families. In much of Delaware, he says, homes are available for purchase, and the bank programs that require counseling enable families to buy those homes, so the programs are good for the community as a whole. Measuring the extent to which counseling provides those benefits could be a truly daunting task, however. Differences in Rural and Urban Housing Counseling Persons involved with housing counseling in Delaware can identify numerous differences between urban and rural residents that affect their counseling needs. Except where noted below, they say the distinctions are relevant to Rural Development borrowers as well as bank borrowers -- in other words, across different income levels. Several people interviewed for this case study mentioned the lower incomes of rural Delaware residents as a key difference between rural and urban housing counseling in the state. NCALL counselors find that lower rural incomes mean rural people often have more credit problems and need more counseling, so they spend more time with NCALL counselors. Also, she notes, New Castle County residents qualify for purchase assistance with higher incomes than downstate residents, because eligibility is based on having an income below 80 percent of the county median, and New Castle County’s median is higher, so 80 percent of median is higher as well. While houses cost less downstate, she says the difference in prices is not enough to make up for the income advantage in the urban county. Another NCALL staffer thinks the organization may be counseling those already best prepared to become homeowners in New Castle County among those eligible for the bank programs, but receiving a wider cross-section in Kent and Sussex counties. One banker says the state’s most rural residents, those in Sussex County, probably “start about three steps behind” urban dwellers. NCALL counselors agree, stating that both bank borrowers and Rural Development borrowers from New Castle County are more knowledgeable than their counterparts downstate. They are not sure why this is the case. Bank borrowers might be better informed due to heavier bank advertising in the Wilmington area, but Rural Development does not advertise anywhere in the state, and an officer of one major bank says his bank rarely advertises their first-time home buyer program. Realtors may be responsible for part of the difference, since several people note there are more realtors working with bank borrowers in New Castle County than downstate, and Rural Development staff report that their applicants from New Castle County are also more likely to be working with realtors. A state HFA staff person believes downstate residents have not only less income, but also less education and less sophisticated financial “habits.” They are less likely to use checks to pay their bills, and more likely to save at home rather than in a bank account. Thus it is harder for a lender to verify their financial information. Language may pose barriers as well. Some of these problems, she notes, are also experienced by persons living in inner-city Wilmington. There are some general demographic differences between urban and rural counseling clients, as well as differences in income and education. There are more farmworkers in Sussex County than in the more northern parts of the state. Correspondingly, there are more non-English-speaking clients in Sussex County (both Hispanic persons and Haitians) and in New Castle County (Hispanics). NCALL staff find that the (rural) Rural Development clients are more likely to be single parents, most often women, than the (more likely urban) bank clients, because single parents are more likely to have the low income levels that qualify them for Rural Development assistance. Conversely, for a bank program serving families with slightly higher incomes, one banker says the rural borrowers are more likely to be white couples, whereas in Wilmington they are more likely to be black female-headed households. Among couples, NCALL staff have observed that rural couples are more likely to attend counseling together, while in urban areas one spouse will often attend alone while the other works or tends to other obligations. They say a rural woman is more likely to ask to schedule a meeting so that her husband can attend, explaining that he is the one who really knows about their finances. NCALL counselors report also that the more rural the client, the more likely religion is to be an important factor in their life. Religion can become a housing-related issue in several ways. Clients’ budgets are strongly affected if they tithe (pay 10 percent of their income to the church), and NCALL has clients who consider tithing an absolute obligation. Some consider donations to their church for periodic offerings and special events to be an obligation as well. For some traditionally religious families, the man is head of the household and makes all decisions, challenging the mutual-partner assumptions that counselors tend to make about married couples. Religion may affect buyers’ choice of location as well, because they may be willing to consider only homes that are close to their church. Besides the differences in people, there are differences between urban and rural properties as well. Urban borrowers are more interested in townhouses and condominiums, NCALL staff say, while rural residents want single-family houses, often on remote roads with few neighbors. The state HFA mortgage program manager adds that downstate property is more likely to need rehabilitation. A banker with extensive Sussex County experience agrees, noting that even if a borrower will be using a Rural Development loan to obtain a newly constructed home, often the needed infrastructure is missing and must be added, increasing the cost of the house. Properties in rural towns in the state are often overtaxed, he adds. Finally, he states, purchasers are more likely to encounter “not in my back yard” reactions from neighbors in rural areas, because urban residents are more used to diversity. Because of the differences between urban and rural clients, a Rural Development staffperson suggests that housing counseling may well be more useful in remote areas than in urbanized places. In her experience, persons living in more rural areas need more assistance in preparing applications.
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Housing counseling is one of several services NCALL provides. The organization also packages
homeowners’ applications for RHS Section 504 repair loans and grants. It receives no RHS funds
for its packaging work. (A special RHS packaging grant program applies only to organizations
operating in underserved counties, and none of the identified counties is located in Delaware.)
Packaging funds can be obtained as part of a loan or grant issued by the Section 504 program,
but that reduces the sum available to the homeowner, so NCALL has decided not to request those
funds. NCALL’s non-counseling functions center on technical assistance to other rural housing
organizations. USDA’s Rural Development office, which carries out RHS programs, contracts
with NCALL to assist nonprofits sponsoring self-help housing programs across the north central
region of the country, extending as far west as Minnesota, and to help prepare preapplications
for nonprofit developers seeking funds for farm labor housing. NCALL also receives funds
from the Department of Labor, the state of Delaware, and private sources to provide technical
assistance for the development of farm labor housing and rental housing in several states.
HUD contracts with NCALL to provide technical assistance to Community Housing
Development Organizations using the HOME program throughout Delaware. The
organization administers a revolving loan fund as well, providing short-term loans of up
to $5,000 for predevelopment activities by others developing affordable rural housing in Delaware.