Do programs designed to teach low-income buyers actually help? According to Fannie Mae [1] the answer is, not really. But they’re fixable.
On Tuesday, Fannie released the results of its look into pre-purchase homeownership education programs [2] geared toward making sure first-time and low-income buyers are “financially and emotionally prepared” for homeownership, and found the effects of such programs “unclear.”
“For consumers looking to buy a home, pre-purchase homeownership education should help them to make informed decisions,” Fannie reported. “However, research results about the outcomes and effectiveness of pre-purchase homeownership education vary considerably.”
Fannie’s study was designed to “identify gaps and opportunities to optimize participation.” Researchers found that while buyers and agents tends to think pre-purchase education about what the homebuying process is in theory valuable, almost no consumers and few professionals know what’s actually available in terms of education programs and materials.
Fannie found that buyers overwhelmingly hold an “only when required” mindset, meaning they tend to stay away from anything they don’t have to do when in the purchase process. Borrowers frequently considered the programs “’another hoop to jump through’ during an already stressful time,” the report stated. Also from buyers: “It sounds like school and involves coming up with more money if a fee is involved.”
Loan officers and real estate agents didn’t think much kinder toward the programs. According to the report, loan officers tend to see pre-purchase programs as just more work‒‒and more paperwork‒‒to deal with. Agents, similarly, feel like it’s just more to do and is not really their job to educate buyers in-depth about the mortgage process. Both sets of professionals said they worried that subjecting borrowers and buyers to the programs would just drive them to other offices.
Theoretically, again, loan officers and agents see the value in educating borrowers. Because of this attitude, Fannie recommended not disposing of the programs, but rather smarter use of them. Better timing, at the prequalification phase, could go a long way, as could providing incentives for borrowers to take a program, Fannie said. Consumers who take the classes said they did so because they felt they had to, but not because they wanted to.
Fannie also recommended that the onus be shifted to the loan officer and away from the agent, who steer buyers toward pre-purchase education programs. But agents, Fannie reported, “have no concrete incentive or motivation” to do so.
“They view loan officers or mortgage brokers as experts on loan-related steps and process,” the report stated. “While it's easy enough to suggest that [homeownership education] could be beneficial to some clients and seem caring and supportive in so doing, they have no leverage to require it.”