Credit Counselor: Pre-Purchase Counseling Helps Keep a Lid on Foreclosure Problems.(Brief Article)

It has been a long held belief within the mortgage industry that prepurchase homeownership counseling is an effective tool in lowering delinquency rates.

Freddie Mac recently completed a study affirming that belief. It found that borrowers that received counseling "on average" had a 19% lower delinquency rate. Comparing the relative effectiveness of different types of counseling programs, the study found that borrowers participating in face-to-face individual one-on-one counseling saw a 34% drop in delinquency rates. Borrowers participating in classroom counseling saw a 26% drop in delinquency rates and "home study" participants experienced a 21% reduction. These results were found through the analysis of approximately 40,000 Freddie Mac Affordable Gold mortgages originated between 1993 and 2000.

Mark Rosen, community relations manager of The National Association of Housing Partnerships Inc., a Farmington Hills, Mich.-based non-profit counseling service, generally concurred with Freddie Mac's findings, saying, "The advantage of working with a counselor one-on-one is that they are going to be spending more time on the budget process, which is probably the most important aspect (of the process) as far as how to afford a downpayment and not losing your home."

Contrary to Freddie Mac's view, Mr. Rosen believes that classroom workshops are the most effective way to do prepurchase counseling, saying, "I am just partial to workshops." Mr. Rosen said in workshops, "There is more of a sharing of idea. One person may ask a question that someone else may not have thought to ask." The curriculum in the workshops is based on the Federal Housing Administration's Homebuyer Education Learning Program Guide. It goes over five areas: budgeting for the home purchase, shopping for the home, shopping for the lender, the closing process and how to care for a home after closing.

While the FHA and related government agencies are one source of counseling education material for borrowers, the mortgage insurance industry is another. United Guaranty Corp., Greensboro, N.C., is also a provider of prepurchase education material to lending institutions conducting their own in-house counseling.

Anthony Lucente, vice president of emerging markets at United Guaranty, said, "We have our participant manuals and we also have ...