Lessons For Buyers

Some lenders won't approve a mortgage unless borrower completes a course on home-buying

October 05, 2003|By Nancy Jones-Bonbrest | Nancy Jones-Bonbrest,SPECIAL TO THE SUN

It's a Thursday evening and the first of three homebuyer classes attracts about 30 people to the Tri-Churches Housing seminar in Southwest Baltimore.

Some have come to learn more about the home-buying process. Others are there because their lender won't give them a loan unless they attend the classes. And others need the course to qualify for government or private grant money.

Buying a home "involves a lot of money," said Irene Mabry Moses, a real estate agent with Allen Realty in Baltimore who teaches the course. "And if you don't have a lot of experience, you can be taken advantage of."

During the past 30 years, homeownership education and counseling have been interwoven with affordable mortgage lending.

More financial institutions and neighborhood groups are expanding the programs for homebuyers who want to learn more about making house payments and managing their real estate costs.

Other courses help individuals qualify for loans, clean up their credit problems or identify available grants.

"The classes used to be 99 percent low- to moderate-income," said Gwenyth Roberts Padow, the housing counselor for the nonprofit Tri-Churches Housing. "But now almost everyone is required to take the classes if they are applying for grants or, in some cases, if they are buying a home for the first time."

Low mortgage rates have been a boon to homeownership in recent years. People who could not have secured mortgages a decade ago are now qualifying, helping to produce record real estate sales in the past three years.

Computerized lending decisions and credit scoring have made mortgage lending faster and more scientific. And in a push to get more renters to take on monthly mortgage payments, some lenders offer loans requiring down payments of 3 percent or lower.

Banking industry experts believe homebuyer education benefits both the borrower and the bank. With home delinquencies and foreclosures nearing all-time highs, bankers are trying to make sure homebuyers can make their payments.

"Homebuyer education helps identify homebuyers that are, perhaps, more serious going through the process and buying a home - not just applying for a mortgage," said Bob Kaestner, a vice president with Bank of America and spokesman for the Maryland Mortgage Bankers Association.

Consumer advocates said banks often approve monthly payments that are much higher than buyers can afford. And because home prices keep rising, many shoppers find themselves expanding their price range to find the home they want.

The classes address monthly payments, insurance costs, taxes and other maintenance fees that prospective homebuyers may not have considered if they have never financed a home.

Beth Kilmoyer rents in Federal Hill and attended a home-buying workshop last month held by Tri-Churches at St. Jerome's Head Start Center in the Washington Village/Pigtown area. Kilmoyer, a nurse in the clinical information systems of the University of Maryland Medical Center, wanted to find out more about homebuyer incentives being offered in neighborhoods that are within walking distance of her job.

"Before I take on any new endeavors I like to be informed," Kilmoyer said. "I think it's a good introduction and is not too overwhelming."

Many of the educational programs began as a way to promote certain neighborhoods by small community-based nonprofits and government agencies to mostly low-income and first-time buyers.

In recent years, however, the programs have evolved into an industry unto itself, attracting more mainstream homebuyers with a wider range of mortgage products.

Nicholas Retsinas, director of the Joint Center for Housing Studies of Harvard University, said homeownership counseling took off after the mortgage industry turned to automated underwriting in the mid-1990s.

"Credit history became important," Retsinas said. "Before that, the best predictor someone would repay the mortgage was a down payment."

The theory was that if a borrower could afford a large- enough down payment, there would be more of a stake in paying the mortgage instead of losing the equity.

"But with the introduction of automated underwriting and credit scoring, it appears credit history is the more significant predictor," Retsinas said.

A 2001 study by the joint center found that homeownership counseling before a property is purchased significantly reduces the delinquency rates of borrowers.

Those who receive classroom and individual counseling are, respectively, 23 percent and 41 percent less likely ever to fall more than 60 days behind on their monthly mortgage payments, compared with equivalent borrowers who do not undergo counseling, according to the study.

The center looked at 40,000 mortgages originated under Freddie Mac's Affordable Gold program, which helps low- and moderate-income buyers qualify for mortgage financing. The program requires at least one qualifying borrower to receive homeownership counseling before a house is purchased.

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