Acknowledgments. Winning Strategies: An Analysis of State Housing Finance Agency Support for HEC Services

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2 Acknowledgments The primary researchers and writers for this paper were: Doug Dylla, Doug Dylla Consulting, LLC Dean Caldwell- Tautges, Dean Caldwell- Tautges Consulting, LLC In addition, the following people worked on the project team and provided invaluable research: Christopher Hudak, Ann DiPetta and Lindley Higgins. Amy Christian of New Leaf Associates edited the report. The authors would like to gratefully thank the Planning Committee that provided ongoing guidance and financial support for this work: David Haney of the Wyoming Community Development Authority; Greg Hancock of the Wyoming Housing Network; and Marietta Rodriguez, Steve Barbier and Marty Gruer of NeighborWorks America. The authors also want to thank Garth Rieman of the National Council of State Housing Agencies, and George Leocata, senior vice president of single family programs at the State of New York Mortgage Agency, for their critical advice on this project. The views expressed in this paper are the views of the authors alone and do not necessarily the reflect the views of NeighborWorks America, the Wyoming Community Development Authority or the Wyoming Housing Network. Finally, the authors are extremely appreciative of the key informants from the selected housing finance agencies who were interviewed for this paper as well as the many individuals who responded to the online survey for this study. The key informants are listed in the appendix. Copyright 2012 by Doug Dylla Consulting, LLC. All rights reserved. Requests for permission to reproduce these materials (except in short quotations) should be directed in writing to: Doug Dylla Consulting

3 Contents 1.0 Executive Summary and Key Findings Project Overview and Methodology Project Goals Project Methodology Overview of State Housing Finance Agencies Background about HEC Services An Overview of Homeownership Education and Counseling Services Research on the Effectiveness of HEC Services HFAs and National Industry Standards Previous Survey of HFAs and HEC Services Selected Survey Results Findings and Best Practices Conclusions Opportunities Ahead Appendices Appendix A. Key Informants...33 Appendix B. Interview Protocols for Key Informants...36 Appendix C. Detailed Results of HFA Survey on HEC...38 Appendix D. Reference Materials...44 Appendix E. Listing of State Housing Finance Agencies, Appendix F. HFA Profiles...47 Appendix G. HFA Best Practices...57

4 1.0 Executive Summary and Key Findings This project analyzed the support for homeownership education and counseling (HEC) services provided by state housing finance agencies (HFAs). The study included web- based research, an online survey of HFAs, and follow- up interviews with key informants in the industry. Here is a summary of key findings from this research: One hundred percent of the 51 HFAs surveyed noted that part of their mission is to assist low- and moderate- income residents to purchase homes and be successful homeowners. The loan volume for most HFAs has been down in the past few years because the interest rates of their mortgage revenue bonds (MRBs) are not competitive with the interest rates of conventional mortgages. Average annual loan volume for HFA respondents in 2011 is estimated at 1,402 loans (a 4% drop from 2010 production). Almost 86% of HFA loan production in 2011 has been with FHA, VA or USDA RD loans. Forty- five HFAs (88%) offer down- payment assistance loans. Fourteen HFAs (27%) allow nonprofits to originate their loans. HFA Support for Homeownership Education and Counseling Seventeen HFAs (33%) require HEC services for all their loan products, and 25 (49%) require HEC for some of their loan products. Six HFAs (12%) provide buyer incentives to take HEC services. Seventy- three percent of HFAs surveyed provide some type of support for HEC services in their states, including: o 30 provide direct financial support for HEC services through nonprofit partners (both prepurchase and foreclosure intervention counseling). o 19 provide training and technical assistance to their nonprofit HEC providers. The key reasons that these HFAs support HEC services are because they believe it: o Helps prepare borrowers for the complexities of the homebuying process (98%). o Reduces loan delinquencies and foreclosures (93%). o Creates stronger and more successful homebuyers (88%). Sixty- seven percent of HFAs think that their support for HEC services will stay the same over the next 2-3 years while 21 percent think their support for HEC services will decrease. The primary reasons that more HFAs do not require HEC services are: o It puts their product at a competitive disadvantage relative to other products o The delivery of HEC services is inconsistent or not provided statewide Page 1

5 More HFAs would consider increasing support for HEC services if: o There were better ways to promote the value of HEC services to borrowers, Realtors and lenders (61%). o If there were more high- quality and consistent service providers (57%). o HEC services were delivered in faster and more efficient ways (52%). Best Practices Identified The use of and support for statewide intermediaries to provide HEC services in MN, WY, MT, CO, GA, FL, TN, CT and elsewhere. A move toward more efficient and cost- effective methods of HEC service delivery, such as: o Online education (ehome America, for example) o Phone counseling The use of nonprofit networks to deliver services: o Outreach, sourcing and secondary financing for buyers o Foreclosure intervention services and other postpurchase counseling services o Originating HFA loans Research to document the strong performance of HFA loan portfolios Implications for Further Exploration and Discussion HFAs need greater loan volume and better marketing in the current competitive mortgage marketplace. HFAs recognize that HEC services add value, but nonprofit counseling agencies need to provide more efficient HEC services and offer full statewide coverage in order to obtain more financial support from HFAs. There are significant partnership opportunities between HFAs and nonprofit housing counseling organizations (such as NeighborWorks organizations) because they share the same missions and work with the same target markets of consumers. These expanded partnerships between HFAs and HEC providers especially through statewide intermediaries could be win-win strategies providing more and stronger loan customers to HFAs and a more sustainable business model to nonprofit counseling agencies. Page 2

6 2.0 Project Overview and Methodology The economic turmoil of the past few years has dramatically changed the homeownership industry, not the least of which is the change in the landscape for all lenders including state housing finance agencies (HFAs), who have historically offered low- interest, fixed- rate mortgages to first- time homebuyers in their states. Low interest rates on conventional mortgages have provided stiff competition while cutting into HFA loan production (and market share) over the past two years. In counterpoint to much of the homeownership boom prior to the current foreclosure crisis, sustainable homeownership begins with educated consumers who have the tools, capacity and options to make good choices about their homeownership decisions, financing products and maintenance of their homes. Homeownership education and counseling (HEC) services most often provided by community- based, nonprofit agencies have been a key component of sustainable homeownership when combined with a low- cost, fixed- rate mortgage and an affordable home in good condition. In spite of the growing demand for HEC services (and growing research that documents the positive impacts of this work), public funding for these services has been declining at the federal and state levels for the past few years due to the weak economic conditions. Given these funding cutbacks, nonprofit counseling agencies and other advocates for HEC services have been looking for other business models to support HEC services. Historically, HFAs have been a major supporter of HEC services and hence, a key stakeholder in the future of HEC services. 2.1 Project Goals This project has three key goals: 1. To research and document best practices by HFAs across the country in supporting high- quality homeownership education and counseling services. 2. To identify new business models for HEC services, particularly those that promote broader coverage, efficient but high- quality delivery, and greater financial sustainability. 3. To provide recommendations to HFAs, NeighborWorks America and nonprofit counseling agencies about future strategies and opportunities to support sustainable HEC services. 2.2 Project Methodology This project included web- based research, an online survey of 51 HFAs, and telephone interviews with 19 key informants from HFAs across the country. Key informants were asked for their opinions on: Current market trends affecting homeownership services. Their organization s innovations and best practices. Perceptions about key opportunities to increase the viability, capacity and sustainability of homeownership services. Page 3

7 3.0 Overview of State Housing Finance Agencies 1 State housing finance agencies (HFAs) are state- chartered authorities established to address the affordable housing needs of their states. All fifty states in the nation have HFAs. Although they vary widely, most HFAs are independent agencies that operate under the direction of an appointed board of directors. They administer a wide range of affordable housing and community development programs to assist both first- time homebuyers and renters. A complete listing of state HFAs is provided in appendix E. HFAs provide nearly $10 billion of affordable financing annually to assist more than 100,000 families to purchase their first homes through their mortgage revenue bond (MRB) programs. MRBs are sold to investors at reduced interest rates because the interest earned is tax exempt, and the savings are passed along as lower interest rates on mort- gages to borrowers to reduce their costs of homeownership. Congress restricts the use of MRBs to borrowers who are first- time homebuyers, typically earning less than area median income and purchasing homes at less than 90 percent of an area s average sales price. Due to severe disruptions in the capital market caused by the financial crisis of 2008, state HFAs financed fewer mortgages in 2009 than in In total, state HFAs financed 41,857 home loans in 2009 compared to 96,488 home loans in 2008 a drop of almost 57 percent. In addition, HFAs also provide a wide variety of other mortgage products to assist first- time homebuyers. These other products include HFA loans, FHA 203(k) loans, USDA Rural Development loans, down- payment assistance programs, and more. HFA mortgage products are usually originated by private lenders. The National Council for State Housing Agencies (NCSHA) serves as the trade association for the national network of HFAs. Each year, NCSHA conducts a comprehensive survey of HFA program activity and publishes it as the HFA Factbook. Here is a brief description of key HFA program information excerpted from the 2009 HFA Factbook: Characteristic Programs Governance Description HFAs oversee a wide range of federal and state affordable housing programs. They also operate a diverse set of community and economic development programs, such as job training, weatherization and low- income heating cost assistance. State HFAs vary greatly in their age, size, programs, administrative structure and relationship to state government. Most HFAs are governed by a board of directors, who are usually appointed by the state s governor or serve ex officio as state government officials. In 2009, the average HFA 1 Adapted from the 2009 HFA Factbook and Page 4

8 Budgets Staff Size Bond Activity Other Funding board size was nine members. In 2009, HFA operating budgets ranged from $2.9 million to more than $161 million, reflecting differences in state size, population and programs. The average annual HFA budget in 2009 was $22 million. HFA staff sizes range from 25 to 886 full- time staff. The average staff size has grown from 72 in 1987 to 173 in 2009, reflecting increased HFA activity over that time. Differences in HFA age and volume of program activity are reflected in the amount of outstanding bonds issued by each, ranging from $15 million to $9.3 billion. Outstanding HFA bonds totaled $113 billion in 2009 for all HFAs. HFAs administered $9.3 billion in combined bond proceeds and state appropriations dedicated for affordable housing in HFAs also administered 27 of the 40 state trust funds to support affordable housing. Page 5

9 4.0 Background about HEC Services 4.1 An Overview of Homeownership Education and Counseling Services Over the past decade, concerns have been raised about the extent to which Americans as a whole are sufficiently financially literate to make the complex decisions required in the ever- changing financial marketplace. In response to these concerns, financial education, which aims to make consumers more informed decision makers, has proliferated. Homeownership education and counseling (HEC) has emerged from the same basic impulse namely, that giving consumers more information (in the case of education) or advice (in the case of counseling) can improve their decision making when it comes to purchasing a home, managing a mortgage, and dealing with setbacks that limit their ability to make monthly mortgage payments. 2 For over four decades, HEC services have been provided to prospective and existing homeowners to provide them with information and advice on a broad range of homeownership- related issues. Nonprofit counseling agencies, often approved and at least partially funded by the U.S. Department of Housing and Urban Development (HUD), are the primary providers of these services. The HUD Housing Counseling Program has been in existence since 1969, and funding for the program has increased dramatically, from $20 million a year in the 1990s to $40 million in FY 2012 (though funding for the program was omitted from the federal budget in FY 2011 and future funding is uncertain). A 2008 study by Abt Associates noted that approximately 1,800 nonprofit agencies received HUD Housing Counseling funds and served over 1.7 million households annually with counseling services. 3 To address the burgeoning foreclosure crisis, Congress provided $540 million to fund the National Foreclosure Mitigation Counseling (NFMC) Program in late 2007, with administration of the program provided by NeighborWorks America. Since that time, NeighborWorks America has awarded $508 million in grants to 179 HUD- approved housing counseling intermediaries, state housing finance agencies, and community- based organizations to fund foreclosure intervention counseling and legal assistance to at- risk homeowners. To date, the NFMC Program has served 1.2 million homeowners across the country and helped to strengthen the nation s foreclosure counseling capacity. 4 2 Collins, J.M. and C. O Rourke. (2011). Homeownership Education and Counseling: Do We Know What Works? Research Institute for Housing America and Mortgage Bankers Association. 3 Herbert, C., J. Turham, and C. Rogers. (2008). The State of the Housing Counseling Industry: 2008 Report. HUD Office of Policy Development and Research and Abt Associates. 4 NeighborWorks America. (September 2011). National Foreclosure Mitigation Counseling (NFMC) Program: Congressional Update. Page 6

10 Funding for HEC program services is an ongoing challenge for nonprofit counseling agencies. Often, they stitch together funding from these sources: Federal programs such as the HUD Housing Counseling Program or the NFMC Program; State sources, such as state housing trust funds, state agencies or housing finance agencies; Contributions from partners such local or regional lenders, businesses or foundations; and Fees for services from their lending partners or from consumers themselves. In the context of the weak economy of the past few years, and faced with cutbacks in state and federal funding due to budgetary constraints and accompanied by growing demand for counseling services, counseling agencies are struggling to find a sustainable business model for their HEC services that does not rely too heavily on annual grants from public sources. Defining Homeownership Education and Counseling As researchers J. Michael Collins and Collin O Rourke perceptively point out, The HEC industry is often written about as a single monolithic entity, which fails to recognize the diverse array of programs and services that this industry entails. 5 HEC activities cover a broad range of issues including prepurchase education and counseling, credit counseling, rental counseling, homelessness counseling, reverse mortgage counseling, postpurchase counseling, and delinquency or default counseling. For the purposes of this study, we are focusing primarily on prepurchase homeownership education and counseling services, and to a lesser extent on foreclosure intervention counseling. Even within this narrower range of services are many variations. Part of the challenge is that the HEC industry has long suffered from the lack of national standards and inconsistencies in services delivered from region to region. Much of that is changing now with the development of the National Industry Standards (NIS) on Homeownership Education and Counseling, which have clearly defined standards for these activities. 6 In terms of definition, homeownership education is typically used to describe group seminars, classes or workshops provided to consumers to prepare them to purchase a home. These interactive classes can range from one- hour orientation sessions to 30 or more hours of intense training. However, most agencies that have adopted the National Industry Standards provide eight hours of classes. In addition, the NIS requires that all trainers providing homeownership education services obtain national training certification. 5 Collins, J.M. and C. O Rourke. (2011). Homeownership Education and Counseling: Do We Know What Works? Research Institute for Housing America and Mortgage Bankers Association. 6 Refer to Page 7

11 Homeownership education classes typically use curricula covering these core topics: Assessing readiness to buy a home Budgeting and credit Financing a home Selecting a home Maintaining a home and finances Over the past few years, many nonprofits have begun to incorporate web- based training programs as an alternative or in addition to the classroom- based trainings. One of the most commonly used online training programs is ehome America ( although several HFAs have created their own online programs. This online education option has been a boon to serving customers living in broad, rural geographies; younger, tech- savvy consumers; and potential homebuyers who want a quicker or more convenient training option than the typical classroom training can offer. Homeownership counseling usually refers to one- on- one sessions with consumers to address their specific issues and concerns rather than providing generalized advice. Counseling is different from education because it is less about transferring information and more focused on individualized problem- solving and goal- setting with the consumer. Homeownership counseling occurs in one or more sessions lasting minutes each. Typically, these counseling sessions cover the following activities: Discussing the consumer s short- and long- term goals; Documenting household income and expenses; Determining household savings and debt levels; Reviewing the consumer s credit report and identifying credit challenges; Developing a household budget, if needed; Conducting affordability analyses; Developing a written action plan; Scheduling counseling follow- up, if needed; and Making referrals for other services, if needed. By its very nature, one- on- one counseling can be much more labor- and resource- intensive than educational services. While counseling has traditionally been delivered in face- to- face sessions, counseling services increasingly are being provided over the phone, through the Internet and/or via . This shift has occurred as providers attempt to increase capacity, reduce costs, and make their services more convenient and accessible. Homeownership education and counseling services are often combined in a comprehensive approach to help prospective homeowners qualify for mortgages, buy homes and be successful homeowners. Default or foreclosure intervention counseling services are delivered to distressed homeowners who are delinquent with their mortgage to help them avoid foreclosure. Page 8

12 4.2 Research on the Effectiveness of HEC Services Community development advocates have long promoted the benefits of homeownership education and counseling services, both for prospective homeowners to prepare them for the challenges of homeownership, and for existing homeowners to help them avoid mortgage delinquencies and/or defaults. Among the most compelling reasons offered for providing HEC are the following: 1. It helps consumers learn stronger money- management skills (such as preparing and maintaining a budget, increasing savings, reducing debts, and more). 2. It provides timely and unbiased advice to prospective homebuyers. 3. It helps reduce loan delinquencies and defaults. 4. It produces more efficient real estate transactions by preparing more informed consumers. 5. It helps guide prospective homebuyers to other trusted advisers in the process, such as lenders, Realtors, house inspectors, etc. 6. For some buyers, it can connect them to public programs that can provide them with below market rate down- payment assistance and other loans or grants. Significant research has been conducted over the past decade to demonstrate clear and positive effects of HEC services. A recent environmental scan by researchers Collins and O Rourke analyzed the results of 18 HEC evaluations. 7 Overall, they note that these studies suggest HEC is effective. On the prepurchase side, HEC services appear to have positive effects on credit scores and timely loan repayments. On the postpurchase side, counseling appears to increase the likelihood of loan modifications and decreases in foreclosures. Collins and O Rourke also add some cautions worth mentioning: 1. Consumer behavior is not always rational, so even well trained and knowledgeable consumers may make poor choices based on a lack of self- control, overconfidence, listening to fraudulent advisers, or other factors. 2. Few of the studies use rigorous experimental designs, examine standardized interventions or track data longitudinally over time. 3. Many of the existing studies focus solely on the outcome of loan performance. While this outcome is important to many, there are other potential outcomes of HEC worth exploring as well. The researchers also note that many of the studies suffered from selection biases that is, the people who voluntarily seek out counseling services are different from those who do not in ways that can affect key outcomes, such as loan performance. In other to avoid these biases, researchers must incorporate more robust and often more expensive strategies in the design of their studies. 7 Collins, J.M. and C. O Rourke. (2011). Homeownership Education and Counseling: Do We Know What Works? Research Institute for Housing America and Mortgage Bankers Association. Page 9

13 Nonetheless, while we can all agree that more robust studies on the impacts of HEC services are needed, with more than 18 studies completed in the last 15 years it important to acknowledge that HEC has been shown to have important and positive outcomes for prospective homebuyers and existing homeowners. The table below summarizes several of these key benefits of HEC identified in four studies: Key Benefits and Researchers Reduced loan delinquencies Hirad and Zorn, 2001 Improved financial health and increased knowledge Staten, Elliehausen and Lundquist, 2002 More efficient transactions Hartarska, Gonzalez-Vega and Dobos, 2002 Increased mortgage sustainability Neil Mayer et al., Urban Institute, 2011 Specific Impacts Identified Borrowers who received HEC had a 19% 34% reduction in delinquency rates. Borrowers who received HEC had significant increases in their credit scores and/or had improved overall credit health. Counseled borrowers are better able to measure ability to pay and select better loan products. Counseled borrowers are 67% more likely to remain current on their mortgages Page 10

14 4.3 HFAs and National Industry Standards 8 The National Industry Standards for Homeownership Education and Counseling were developed from a number of sources, including materials from HUD and local, regional, and national housing counseling organizations. The advisory council for the National Industry Standards established these standards after extensive feedback from lenders, government- sponsored entities (GSEs) (Fannie Mae and Freddie Mac), HUD, mortgage insurers, government agencies, and representatives of local, regional and national housing counseling organizations. The following state housing finance agencies have endorsed these NIS to date: Connecticut Housing Finance Agency Florida Housing Finance Corporation Idaho Housing and Finance Association Kentucky Housing Corporation Louisiana Housing Finance Agency Michigan State Housing Development Authority Minnesota Housing Mississippi Home Corporation North Carolina Housing Finance Agency North Dakota Housing Finance Agency Ohio Housing Finance Agency Pennsylvania Housing Finance Agency Tennessee Housing Development Agency West Virginia Housing Development Fund Wisconsin Housing and Economic Development Authority A number of HFAs have included NIS adoption requirements in their grant and/or programming agreements with housing counseling agencies in their states. These HFAs are: Connecticut Housing Finance Agency Florida Housing Finance Corporation Michigan State Housing Development Authority Minnesota Housing Tennessee Housing Development Agency Note: Although not yet an endorser of the NIS, the California Housing Finance Agency required adoption of the standards for grantees of its Hardest Hit Fund. 8 Information about the National Industry Standards for Homeownership Education and Counseling was obtained from NeighborWorks America and December Page 11

15 4.4 Previous Survey of HFAs and HEC Services 9 In 2010, the National Council of State Housing Agencies (NCSHA) and Minnesota Housing administered a survey to HFAs to ascertain their support for a range of homeownership education and foreclosure prevention counseling services. Thirty- four HFAs responded to that survey and highlighted their support of the following activities: Prepurchase classroom- based homeownership education, Prepurchase one- on- one homeownership counseling, Postpurchase classroom- based homeownership education, and Foreclosure prevention counseling. HFA Support of Homeownership Education and Counseling Services The survey revealed significant support for HEC activities by HFAs: 97% of HFA respondents offer some type of HEC services, directly or indirectly; 85% administer foreclosure- prevention counseling programs; 79% support classroom- based education programs; and 52% provide support for one- on- one counseling. Sixty- two percent of HFA respondents fund other agencies in the state to provide direct HEC services. Almost one- third (29%) provide some combination of indirect and direct support for HEC services, while six percent provide HEC services directly. Funding Source for HEC Services Federal funds were the largest source of funds used by 78 percent of HFAs to support HEC services. However, HFAs also used other resources to support these services, such as: Internally generated funds (66%); Other state funding (28%); Local government investments (22%); and Philanthropic support (13%). HFA Program Requirements for HEC Services Seventy- nine percent of respondents have programs that require some type of HEC, often for eligibility for down- payment assistance programs. Eighteen percent require HEC for all first- time homebuyer programs, though great flexibility is allowed in fulfilling the requirement. Standards for HEC Services While the vast majority of HFAs have some type of standards for the delivery of HEC programs, there was great variation. The most common standards were: Requiring the use of a HUD- approved counseling agency to deliver services (31%); Their own state- developed requirements (28%); and Requiring compliance with the National Industry Standards or requiring HEC pro- fessionals to have specific training certificates from NeighborWorks America (21%). 9 NCSHA. (October 2010). Homebuyer Training and Support Services Survey for Housing Finance Agencies. Page 12

16 5.0 Selected Survey Results Despite a growing demand for HEC and foreclosure intervention counseling services, public funding for these services has been declining at the federal and state levels for the past few years due to the weak economy. Given these funding cutbacks, nonprofit counseling agencies and other advocates for HEC services have been looking for other business models to support HEC services. Historically, HFAs have been a major supporter and funder of HEC services, since HFAs and housing counseling agencies share a common mission to promote sustainable and affordable homeownership One of this project s key goals was to research and document new best practices by HFAs across the country in support of high- quality homeownership education and counseling services. In order to document these best practices and other related information, an online survey was developed and distributed to all HFAs with follow- up to key informants by phone and . This section of the report highlights selected results from that online survey. Details on all responses to the entire survey are located in the appendix of this report. Response Rate and Mission All Fifty- one state HFAs responded to the survey. 100% of those HFAs reported that their mission is to assist low- and moderate- income residents to purchase homes and be successful homeowners for the long- term. Loan Volume and Production HFA loan volume is down recently because MRBs are not competitive with interest rates of conventional mortgages. Loan volume of respondents was down 4% in 2011 compared to % of HFA loan production in 2011 was with FHA, VA or RD/USDA loans. HEC Services: Required or Incentivized Seventeen (17) HFAs require HEC services for all their loan products Twenty- five (25) require HEC services for some of their loan products Six (6) other HFAs provide some incentives for consumers to take HEC services Page 13

17 Down-Payment and Closing-Cost Assistance Forty- five HFAs (88% of survey respondents) provide some type of down- payment assistance (DPA) to first- time homebuyers. Some HFAs structure this assistance as grants, but most provide it in the form of low- interest loans. DPA assistance can often include assistance with closing costs as well. On average, each HFAs provided 960 DPA loans in 2010 averaging $6,500 each. In 2010, each HFA averaged $6 million in DPA loans, and the HFAs together provided more than $242 million in DPA loans. Page 14

18 Originating HFA Mortgages While HFAs most commonly rely on commercial banks and lenders to originate their mortgages, some use a variety of other partners to originate and close on their mortgages. These other partners include credit unions, mortgage brokers and mortgage bankers. Fourteen HFAs use nonprofit agencies to originate their loans. HFA Servicing Capabilities In response to the survey question about servicing capabilities, 21 (41%) of respondents reported that they service their own loans. Many HFAs use a Master Servicer, such as U.S. Bank Home Mortgage, for these servicing activities. The survey also asked whether the HFA tracks which borrowers received HEC services. Twenty- nine HFAs (57%) track this information in their data systems. This data is impor- tant in the event that future research studies are performed so that the loan performance of customers who received HEC services can be compared with those who did not. Finally, the survey asked whether the HFA provides foreclosure intervention counseling services. Twenty- eight HFAs (55%) reported that their agency provided loss mitigation or foreclosure intervention counseling services, often by contracting for this work through statewide networks of HUD- approved housing counseling agencies using National Foreclosure Mitigation Counseling funds. Page 15

19 Requirements and Incentives for Homeownership Education and Counseling The survey asked whether the HFAs have requirements or provide incentives for loan customers to use HEC services. Seventeen HFAs (one- third) reported that they require HEC for all of their mortgage products, while another four HFAs provide some type of incentives to encourage customers to participate in HEC services. (See the chart at the top of page 14.) Almost half of the respondents (25) require HEC services for some of their loan products, and another two HFAs provide incentives for using HEC. Often, the requirements for HEC are tied to special products targeted to income- qualified, first- time homebuyers. These products typically allow lower down payments, higher debt ratios, lower credit scores, or other special underwriting criteria. Almost all of the numerous down- payment assistance programs offered by HFAs have HEC requirements. The survey also asked whether any of their partners, such as lenders, nonprofit agencies, local government agencies, mortgage insurers and others, required HEC services. Local government and nonprofit agencies were the two groups most commonly cited for having HEC requirements, often in conjunction with down- payment assistance loans or grants. Technical or Financial Support for HEC Services The survey asked whether HFAs provide any kind of financial or technical support for HEC services in their states. Almost three- quarters of HFAs (37) reported that they provide support for HEC services in their states. Fourteen percent (seven) provide HEC services directly through home study materials, in- house staff offering workshops, and/or phone counseling in addition to web- based Page 16

20 educational programs. However, the majority (59% or 30) provide a wide variety of support to nonprofit counseling agencies in their states to deliver these HEC services. The types of support provided by HFAs for HEC services are very diverse, ranging from providing direct financial support of nonprofit counseling agencies to providing training opportunities for counselors in order to obtain relevant certifications or participate in continuing education classes. Other HFAs help organize and convene statewide networks of nonprofit counseling agencies, either in formalized intermediaries or in more informal collaborative structures. In either case, this support for statewide networks of counseling agencies has provided many cost- effective benefits to HFAs. Page 17

21 Reasons for Supporting Homeownership Education and Counseling Services When asked the key reasons for supporting HEC services in their states, the responses were very clear- cut. Almost 98 percent of respondents felt that HEC helped prepare borrowers for the complexities of the homebuying process. More than 92 percent felt that HEC reduces loan delinquencies and foreclosures. And almost 88 percent responded that HEC creates stronger and more successful homebuyers. Page 18

22 Expected Support for HEC Services in the Next 2 to 3 Years Despite the strong commitment to HEC services, most HFA respondents were somewhat pessimistic about their level of support over the next 2 to 3 years. Many cited the dismal state of the economy and cutbacks in funding at both the national and state levels. Twenty- one percent of HFA respondents expected that their agency s support for HEC would decrease. Remarkably, in light of the weak economic news, 67 percent predicted that their agency s support for HEC would stay the same in the next 2 to 3 years. Even more surprising, 12 percent of respondents predicted that their agency s funding for HEC would increase in the next few years. The majority of HFAs would consider increasing support for HEC services if: There were better ways to promote the value of HEC to borrowers, Realtors and lenders (61%) There were more high- quality and consistent HEC service providers (57%) HEC services were delivered in faster and more efficient ways (52%) The Impact of the Loss of HUD Housing Counseling Funds The survey asked respondents to rate their responses to statements about the potential impact of the loss of HUD Housing Counseling funds. As the table below notes, HFA respondents overwhelmingly felt the loss of this funding would have numerous negative consequences for potential homebuyers in their states, for local counseling agencies, and for their agencies. Page 19

23 Please note your response to these statements about the potential impacts of the loss of HUD Housing Counseling funds in your state. Answer Options It will reduce the number of low- and moderate- income households that your agency will be able to help attain homeownership. It will reduce your agency's capacity for sourcing and educating potential homebuyers. Strongly Agree Agree Disagree Strongly Disagree It will cause significant harm to local counseling agencies It will not have much impact since counseling agencies it will only touch a small minority of your first- time homebuyers Standards for Homeownership Education and Counseling The survey asked a series of questions about standards for HEC services. The table below highlights the results from these questions. The first question in the series asked whether their HFA has adopted or endorsed the National Industry Standards (NIS) for Homeownership Education and Counseling (more details are available at These standards, developed by a broad group of industry stakeholders, have been widely adopted by government agencies, nonprofit groups, real estate businesses and lenders. Twenty- eight HFAs reported that they had adopted the National Industry Standards. Thirteen other HFAs noted they had their own HEC standards; 19 certify their HEC trainers and counselors; and 15 states have their own HEC curriculum. In terms of service delivery issues, 27 HFAs make a distinction between education and counseling services; 35 HFAs approve the use of online educational programs; and 26 HFAs approve of use of telephone counseling services. Please answer these questions about standards for homeownership education and counseling (HEC) services. Yes No Don't Know Has your agency adopted the National Industry Standards? Does your state have its own standards for HEC services? Does your state have certification standards for HEC trainers and counselors? Does your agency provide its own curriculum and standards for its HEC providers? Does your agency make a distinction between homebuyer education and counseling? Does your agency approve of online educational services? Does your agency approve of telephone counseling services? Page 20

24 6.0 Findings and Best Practices As noted previously, both HFAs and nonprofit counseling organizations have been experiencing reduced homeownership production due to the challenging economic environment, more stringent lending requirements, the weak housing market and low consumer confidence. These current market conditions are creating challenges for HFAs for both loan production and support of HEC programs. The loan volume for most HFAs is down in recent years because the interest rates of their mortgage revenue bonds (MRBs) are often not competitive with the interest rates of conventional mortgages. According to HFA survey respondents, about 85 percent of last year s HFA loan production consisted of FHA, VA or RD/USDA loans rather than MRBs. Even then, average loan volume in 2011 for HFA survey respondents was roughly 1,400 loans, a four percent drop from 2010 and significantly less than during the boom years of the early 2000s. Many nonprofit housing agencies are also struggling, not only with finding sustainable HEC business models and managing reduced funding for their programs, but also in reaching prospective qualified homebuyers to participate in their services. These overlapping challenges create potential synergies for both groups to work more cooperatively to implement best practices and new business models for: 1. Delivering more cost effective HEC services to more diverse, statewide audiences; 2. Overseeing and funding HEC activities; 3. Marketing to consumers, Realtors, and lenders; 4. Promoting the compelling benefits of their loan products and HEC services; and 5. Conducting research that demonstrates the impact of HEC services on mortgage performance and other benefits. In next the few years, home sales will likely increase due to loosening credit requirements, low interest rates and affordable home prices, as well as the introduction of new mortgage products targeting those who may have lost homes during the housing crisis but now want to re- enter the market. What are the implications of this evolving reality for HFAs and nonprofits providing HEC services? Here we will briefly highlight several key findings from the recent survey of 51 HFAs, as well as numerous interviews and other research. We will also highlight possible implications of these findings while attempting to offer some best practices from a variety of HFA and HEC networks throughout the country. Please note that there is a set of HFA best practice profiles in the appendix F. 1. More efficient and cost-effective delivery of HEC services is needed. Historically, HEC services have been delivered using a traditional classroom or workshop setting, targeted to a focused audience and offered on a set schedule. This labor- and resource- intensive model is typically taught by varying combinations of nonprofit staff and, in some cases, lending and real estate professionals who have partnered with local Page 21

25 counseling agencies. Attendance varies greatly based on many variables, but it is not uncommon to see classes with fewer than a dozen households. Within a single state, there can be dozens of different nonprofit agencies offering prepurchase workshops, often with different curricula and multiple standards, as well as widely variant levels of instructor expertise and teaching approaches. These realities can lead to inconsistent HEC quality and availability within a city, region and certainly across a state, which can result in consumers having vastly different educational experiences. Thus, it is understandable that HFAs, real estate agents, and lenders are not aggressively promoting HEC services to consumers using their loan products. One clear finding is both the lending industry and consumers need a more uniform and cost- effective HEC delivery system that is available statewide. In states where HFA support for HEC is severely limited, the lack of uniform, statewide HEC services was often cited as a key reason. In contrast, in those states where convenient, cost- effective statewide HEC services are a reality (such as in MN, MT, VA and other states), production of HFA loans with fully educated homeowners has risen. A uniform, statewide HEC experience can be accomplished through the use of statewide intermediaries (see next section), or through the introduction of an online educational program that is complemented with some type of in- person or phone- based counseling. In some states, online education is being offered in place of workshops due to limited funding. In other states, online education is offered as an option to traditional classroom education. In all states, the primary goals of adding the online option are reaching more diverse demographic groups of homebuyers as well as raising overall HEC production. According to the National Association of Realtors (NAR), over 90 percent of today s homebuyers begin their search online. Increasingly, low- to moderate- income consumers have access to reliable, high- speed Internet at home, at work, at a coffee shop, or even on a mobile device. Online education is fast becoming a more accepted way to learn basic facts and skills in all facets of life, including both homeownership education and financial literacy. Web- based homeownership education creates a consistent product accessible 24/7 by any prospective homebuyer. Due to increased availability, accessibility and convenience, online education programs expand the market of possible consumers while delivering basic, uniform educational services at a significantly lower cost than classroom models. With the right platform, the educational experience can be engaging and easy to navigate. Moreover, online Did You Know? HUD, USDA, NeighborWorks America, and the National Industry Standards for Homeownership Education and Counseling all permit and accept online homebuyer education as a service delivery method, especially when complemented with individualized in- person or phone counseling. Page 22

26 educational services can be completed by consumers who might never have attended a traditional classroom workshop due to their work schedule, family commitments or distance. When part of a comprehensive marketing and delivery system executed by HFAs, statewide intermediaries and nonprofit providers, online education can lead to higher production as shown in Wyoming and elsewhere (see sidebar). Another advantage is that it frees up time for counselors to focus on delivering customized one- on- one counseling versus planning and executing an 8 to 12 hour class in the evenings or on Saturdays. Also, some online models are generating new revenue streams, allowing nonprofits to become more self- supporting. By charging the consumer a small fee ($25 $75 in most cases), nonprofits have been able to invest these new revenues into hiring more HEC staff, purchasing equipment or conducting more outreach. Many HFAs and statewide HEC intermediaries are using various online education tools. Some have offered their own online curriculum for several years, like the Virginia Housing Development Authority, which had 6,000 online graduates in fiscal year 2011 in addition to 3,460 graduates who participated in more traditional classroom education. Another example is the Georgia Department of Community Affairs (GDCA), which in response to decreasing funding and shifting homeowner behavior recently began requiring education for all its loan products. GDCA hopes to reach a larger audience of HFA Spotlight in Wyoming In 2009, the Wyoming Housing Network (WHN) started offering online education through ehome America, a web- based training program developed by Community Ventures Corporation. WHN completed HEC services with more than 900 customers across Wyoming in both FY 2010 and 2011 the largest homeownership production in the NeighborWorks network. More than 70% of these HEC participants closed on a Wyoming Community Development Authority loan. ehome America is based on Realizing the American Dream, the homeownership curriculum developed by NeighborWorks America. More at: HFA Spotlight in Georgia Due to declining state support, GDCA no longer funds classroom education (previously up to $300 was paid to nonprofits for each work- shop completed) but instead reimburses for individualized counseling at $80 per homebuyer. The intent is to focus limited resources on the specific needs of each homebuyer versus a one size fits all classroom approach. Although ehome America is being used by more than 100 nonprofits nationwide, GDCA is one of the few HFAs hosting and offering the online education product directly. GDCA s goal is to create additional revenues that can be used to support network agencies with con- tinuing education and training for counselors, as well as funding for direct counseling services. Page 23

27 prospective Georgia homeowners in a sustainable manner by using online education and highly customized one- on- one counseling. By subscribing to ehome America and making it a requirement for all its down- payment assistance loans for buyers with credit scores below 660, GDCA hopes to save costs while also meeting its program outcome goals. Other states with online education tools for homebuyers include Colorado, Minnesota and Wyoming (detailed profiles on these states can be found in appendix F). Although phone counseling has been used widely in delivering foreclosure intervention counseling for over five years, it is increasingly being used for prepurchases services, during or after an online education course, or in follow- up to traditional classroom workshops. Phone counseling removes distance and schedule barriers. With proper technology and training, phone counseling can also reduce average counseling time, thereby reducing labor costs and raising counseling production. Phone counseling is being used in predominantly rural states like Wyoming and Montana due to geographic barriers, but also in states like Georgia, where a coaching model is being implemented as a complement to online education. 2. The use of statewide intermediaries overseeing HEC services appears to be highly successful. According to our recent survey, the majority of HFAs provide support to nonprofit HEC providers in their states, with 30 HFAs providing some level of funding for HEC and/or foreclosure counseling. In addition, 19 HFAs provide training and technical assistance to HEC providers, although the level and depth of these services varies greatly. Survey respondents also added a cautionary note by suggesting that their funding for HEC services may remain flat or even decrease over the next several years due to the weak economic conditions in their states. As discussed previously, the primary reasons given by HFAs for not offering more support or requiring HEC for their products include inconsistent quality of HEC services, the lack of statewide availability, or shrinking state funding. There are also limits to the role an HFA as a government entity can play in overseeing a large group of nonaffiliated, independent nonprofits delivering HEC services with regard to training their staff, enforcing standards, providing quality control mechanisms and coordinating services across the state. In several states, independent, nonprofit intermediaries have been developed to serve as a liaison between the HFA and the HEC providers. These intermediaries can often be more nimble in implementing and managing the delivery of a wide variety of statewide services, including marketing, funding, training and reporting on HEC services. These intermediaries have demonstrated that they can cost effectively provide support, training and technical services to nonprofit networks delivering HEC and/or foreclosure intervention services, including NFMC- funded services. Additionally, a nonprofit intermediary can attract additional funding from other housing stakeholders, including corporations, foundations and financial institutions, to leverage Page 24

28 HFA and other government funding. In some cases, this intermediary may also be a member of national network, such as NeighborWorks America or the Housing Partnership Network, and thus are better positioned to leverage technical assistance, training, funding and other support. Although the specifics of oversight and funding vary, most of these organizations or affiliated networks offer a mix of financial support, issuance of standards, and training or technical support, although they have varying degrees of oversight for each nonprofit service provider in their network. However, the benefits of these networks are many. Specifically, nonprofit intermediaries often: 1. Conduct outreach and marketing campaigns to consumers; 2. Obtain resources for secondary financing for buyers; 3. Provide support for HEC services, foreclosure intervention services and other postpurchase counseling services; and 4. Oversee quality- control, reporting and evaluations of their network services. One strong example of a statewide nonprofit intermediary is the Minnesota Home Ownership Center (the Center). Because the Center is a nonprofit, it is better positioned to support a flexible and innovative HEC industry offering new ways to serve consumers, while at the same time delivering a consistent, high- quality service statewide. The Center oversees the distribution of HEC and NFMC funds, certifies programs and their staff, enforces statewide standards and program policies, and assures accurate and detailed measurement of outcomes. (For a detailed summary of the Center s outcomes, see: hs.cfm) The Center also empowers its Homeowner- ship Advisors Network, a statewide network of nearly 40 community- based public, private and nonprofit providers of education and counseling services for Two Perspectives from Minnesota From Minnesota Housing: We re not in the business of HEC operations and oversight. We re a lender and supporter of affordable housing development. The Minnesota Home Ownership Center has played the key role in developing Minnesota s robust, successful homeownership education and counseling programs. Mike Haley, Assistant Commissioner From the Minnesota Home Ownership Center, a statewide intermediary: Without the Center, the Minnesota homeownership and education marketplace would still exist. However, it would be far less effective, with services of questionable content and inconsistent quality. There would be no standards; buyers, funders, and lenders would not know what to expect. Their confidence in HEC would be very low. With the partnership between Minnesota Housing and the Center, everyone gets a consistent, high-quality product. Julie Gugin, Executive Director Page 25

29 prospective and existing homeowners. This support includes a nationally recognized workshop curriculum called Home Stretch, as well as ongoing training and technical assistance to ensure quality program delivery. This network also has an annual competitive funding opportunity called HECAT (the Homeownership Education, Counseling and Training fund). HECAT funds come from Minnesota Housing, the Greater Minnesota Housing Fund and the Family Housing Fund. The latest HECAT awards issued by the Center in late 2011 included more than $1.4 million for housing counseling, including more than $600,000 for prepurchase workshops and counseling services. More than 30 nonprofits received funding for prepurchase programs, with awards ranging from $7,000 to as much as $60,000 per agency. In addition to HECAT funding, the Center conducts more than 20 workshops annually for network staff members to improve their skills and maintain their certifications. More than 6,500 consumers completed the eight- hour Home Stretch course through more than 500 statewide workshops in fiscal year Since 1993, the Center has helped over 100,000 Minnesotans achieve and sustain successful homeownership. Another example of a statewide intermediary overseeing various aspects of statewide HEC can be found in Oklahoma. The Oklahoma Homebuyer Education Association (OHEA), a collaboration of 84 nonprofit housing and housing industry groups (including Realtors and lenders), was established in 2001 to strengthen Oklahoma s communities by enabling more families to own their homes. OHEA supports the agencies in its collaborative network by providing standardized, up- to- date curricula for homeownership educators. OHEA has certified over 350 Certified Homebuyer Education Professionals (CHEPs) and provides professional development and continuing education to these professionals. The associa- tion s e- newsletter, For What It s Worth, provides brief updates and promotes additional training opportunities for OHEA s active members. OHEA s vision is realized through standardized, high- quality education and counseling for future Oklahoma homebuyers to better prepare them for successful homeownership. Other statewide models act in similar ways, with many of the same benefits, but are broad collaboratives of nonprofit HEC providers. Together, these nonprofits provide statewide services, often by phone and online, and work together to promote HFA loan products. This model, used in various forms in Ohio, Montana (through NeighborWorks Montana), and Vermont (through NeighborWorks Homeownership Centers of Vermont, a coalition of five NeighborWorks affiliates) and elsewhere, accomplishes the goals of statewide services with uniform marketing, as well as a standardized intake and HEC process. In Colorado, Georgia, Rhode Island, Tennessee and several other states, the HFA acts in an intermediary- type role with its various nonprofit counseling agencies and provides many of the same benefits. Once such example is the Colorado Housing and Finance Authority (CHFA), which has created a unique partnership with 27 local housing counseling agencies that has supported both prepurchase and postpurchase counseling services while furthering CHFA s Page 26

30 fundamental mission. CHFA believes a well- informed homebuyer becomes a successful homeowner. Therefore, since 2000 CHFA has required that all its potential homebuyers and loan recipients complete a CHFA- authorized homeownership education course. CHFA offers two free online classes: one for first- time homebuyers and another on basic money management techniques. CHFA also supports in- person educational workshops statewide for first- time homebuyers. There are three complementary components to CHFA s innovative partnership with HEC providers: 1. Support for HEC services; 2. Online homeownership and financial management classes; and 3. Support for foreclosure intervention counseling. HFA Spotlight: Targeted Marketing in Wyoming WCDA in Wyoming developed a humorous multimedia marketing campaign called First Things First that it uses to increase loan demand when resources are available. (See the spot at bm- rx8) The campaign uses radio and TV spots to stress the importance of homebuyer education as the first step and urging consumers to learn how the process works before buying a home. The call to action is to drive potential homebuyers the website to sign up for HEC. Website visits typically jump between 15% 40% in weeks after the campaign is implemented. A detailed profile on CHFA s programs is available in appendix F. 3. The use of innovative and targeted marketing plans that promote the benefits of HFA loans products and HEC to varied audiences increases visibility and production. As with any product or service, effective outreach is critical to reach the right audience and achieve production goals. To increase the take- up of HFA loan products and HEC services, prospective homebuyers need to be presented with clear messages, from multiple sources, about the value proposition of these products. Outreach for HFA products is even more challenging. That s because HFAs have three distinctly different customers for their loan products and services: consumers, lenders, and real estate professionals. Each group has varying interests and needs, and an effective marketing plan needs to understand each of these target markets as well as identify different marketing messages and strategies to reach each target audience. For years, HFAs have relied on their mortgage revenue bond (MRB) products that had attractive, below- market rates that simplified the marketing message, which was largely focused on the low interest rates. Today, the low interest rates of conventional mortgages make for a much more competitive environment. HFAs need to be much more creative and nuanced in promoting their mortgages by highlighting other product benefits such as down payment assistance, lower credit score or down payment requirements, lower mortgage insurance payments or other benefits. Page 27

31 A multifaceted marketing plan delivers specific messages to different target audiences using messages and methods that resonate with each group. For buyers, both the tangible and emotional benefits of homeownership, along with the financial benefits of HEC and HFA products, must be clearly highlighted in creative and interesting ways such as humorous TV, radio spots or even YouTube videos of real home- Did You Know? 39% of buyers find out about HFA/MRB loan programs from their Realtor a higher percentage of buyers than those who find out from a lender or a nonprofit agency. owners speaking about the benefits of their HFA loan product or their satisfaction with the process. For example, Virginia Housing Development Authority s website ( promotes its highly competitive mortgage rates in a home page web banner, as well as clear homebuyer information and the benefits of education in an easy to navigate website. Additionally, the VHDA offers homeowner testimonies and other engaging videos on its YouTube channel ( These interactive resources create interest in becoming a homeowner and motivate consumers to take action. These strategies are much more engaging to consumers than printed flyers, text alone or downloadable PDF informational sheets about loan products commonly used on HFA websites. As important as it is to reach consumers with messages about product and service benefits, it is equally important to craft messaging and tools for lenders and real estate profes- sionals. According to an in- depth analysis of MRB loan activity in three states, 39 percent of buyers heard about the MRB programs primarily from their Realtor, a percentage slightly more than that reporting any lender advertisements as the primary way they heard about the MRB program (31%). 10 Further, 74 percent list Realtors as one of the top three ways they heard about the MRB program. These findings clearly highlight that lenders and especially Realtors are often where homeowners first turn when buying a house. If these gatekeepers are not aware of and promoting HEC and/or HFA products to the consumer, these services and products will be used much less often. One example of the importance of customizing websites and messaging for homeowners, real estate agents, and lenders can be found in Florida. Florida Housing developed an online First Time Homebuyer Wizard to allow consumers to easily acquire homebuying program information that is specific to their county and household size. With a small staff, fielding hundreds of calls a month proved to be a time- consuming task. The Wizard, easily found on the agency s website, allows buyers and other interested parties like real estate agents or nonprofit housing organizations to quickly find what they need. The 10 Moulton, Stephanie. (April 2009). Mortgage Revenue Bond Program Analysis: Origination Practices and Borrower Outcomes in Ohio, Indiana & Florida; Summary Report. Page 28

32 Wizard provides details on the loan products and rates, down- payment assistance, income limits, purchase price limits, a list of local lenders, and links to find specially trained Realtors and approved housing education providers. The Wizard is currently accessed approximately 1,000 times a month. The online tool also assures that buyers can find active local lenders who are fully trained and engaged in affordable housing and are up- to- date on the first- HFA Spotlight in Florida: Using Technology To More Efficiently Provide Program Information To Engage Realtors and Lenders Check it out Florida Housing s First Time Homebuyer Wizard at: HBWizard/FTHBWizardForm2.aspx time buyer program. Only those local lenders who have successfully had two or more loans closed in the most recent quarter are listed on the site. Additionally, Florida Housing partners with a network of participating Realtors throughout the state who have completed a three- hour continuing education course called Affordable Housing Solutions, What Every Realtor Should Know. This course provides Realtors with a working knowledge of affordable housing resources available to their customers throughout the state, with an emphasis on Florida Housing s First- Time Homebuyer Program. The Wizard provides a link to find nearby real estate professionals who have completed this course. In summary, given the current competitive mortgage marketplace, HFAs need better marketing and communication efforts to achieve greater production. Fully engaging websites, paired with public service or paid advertising and online educational options, will drive interest in loan products and HEC services. These efforts, together with competitive loan products that require education, such as the HFA Preferred Risk Sharing loan recently announced by Fannie Mae, will help drive interest from lenders, real estate professionals and consumers. Page 29

33 7.0 Conclusions HFAs and nonprofit housing counseling organizations share similar missions and provide similar programmatic activities, often with the same target markets in mind typically, low- and moderate- income residents seeking safe, affordable housing and especially first- time homebuyers. As documented in this study, many HFAs and nonprofit counseling agencies are working together closely to successfully serve first- time homebuyers in their states. However, with the economic downturn and the financial upheavals of the past four years, both HFAs and nonprofit counseling agencies are facing challenging times directly related to their business models. HFAs have seen their mortgage revenue bond (MRB) programs become uncompetitive in the marketplace due to the low interest rates offered on conventional loans. As a result, they have had to shift to government loan products like FHA and USDA RD loans to retain their market share. Nonprofits are facing funding cutbacks for their HEC services (except for perhaps foreclosure intervention counseling) from public and private sources due to the weak economy and budget cutbacks at the federal, state and local levels. Thus nonprofits are struggling to maintain the high- intensity, high- touch counseling services that they have offered to clients over the last two decades. Most HFAs and nonprofits have seen their homeownership production shrink over the past few years as foreclosure intervention services became the priority, as mortgage lending has tightened, and as consumer confidence in homeownership investment has waned. It is clear that HFAs and nonprofit counseling agencies would both benefit from closer working relationships to address these issues together. First, HFAs need and want greater loan volume, and nonprofits can help. Nonprofits have become much more productive and outcome- oriented over the past decade. For example, nonprofit affiliates in the NeighborWorks network counseled over 92,000 people and assisted over 13,400 households to purchase homes in FY There s no reason to think that a substantial portion of these potential buyers would not select an HFA loan product if stronger partnerships were established between NeighborWorks organizations and their state HFAs. Consider the Wyoming case study in this report, where over 600 buyers per year have been trained, counseled and referred to the Wyoming Community Development Authority for mortgages by the statewide nonprofit, Wyoming Housing Network. Second, HFAs rely heavily on Realtor and lender partners to market their loan products, but these partners may have mixed allegiances or potential conflicts in guiding customers to particular loan products. In other words, time constraints, potential commissions and a variety of other factors may influence the advice that these professionals provide about Page 30

34 choosing a loan product that may not be in the best interests of the consumer over the long term as the subprime loan crisis so sadly revealed. Working together, nonprofits and HFAs can develop targeted marketing campaigns to attract first- time buyers, educate and counsel them, and lead them to safe and affordable mortgage products as part of a coordinated and systematic approach to creating sustainable homeownership opportunities. Third, in light of the tight credit environment of the past few years, nonprofits need access to fair and affordable financing for their homeownership customers ideally, fixed- rate mortgages with reasonable underwriting criteria and down- payment assistance. HFA loan products, while perhaps not offering the lowest interest rates on the market, are arguably some of the best and safest products available to first- time homebuyers. Fourth, nonprofits need to find more sustainable business models to support their HEC services. As highlighted in this report s surveys, HFAs recognize that HEC services add value, but HFAs need more cost- effective, statewide delivery of high- quality and consistent HEC services in order to provide their financial support. Several excellent models for sustainable HEC services are in place or are just developing across the nation. Numerous HFAs, including those in Wyoming, Minnesota, Connecticut, Ohio, Tennessee and Georgia, are using fee- for- service relationships with nonprofits in their states to support HEC services. In short, there are clear programmatic synergies between HFAs and nonprofit counseling agencies. Expanding these partnerships between HFAs and HEC providers especially through statewide collaborations or intermediaries are truly winning strategies for all parties by providing: More and stronger loan customers for HFAs; Safe and affordable financing for first- time homebuyers; and More sustainable support for nonprofit counseling agencies HEC services. Page 31

35 8.0 Opportunities Ahead Opportunities Posed by an Improving Economy It may be illusory, but the U.S. economy may finally be improving. If so, there may be opportunities for those willing to plan ahead. Like the homeownership boom of the early 1990s, there may be similar growth in the mid- 2010s as the recession recedes, consumer confidence increases, and people who deferred purchases return to the market. Keep in mind that interest rates are near 50- year lows and housing prices are at 10- year lows. More Government Agencies and Lenders Requiring HEC Services In response to the hard lessons of the foreclosure crisis, many lenders, government agencies and the GSEs may require homeownership education or counseling for more of their loan products, especially those loan programs that serve first- time homebuyers. This will provide significant growth opportunities for agencies that can provide counseling services at scale to potential homeowners. However, these requirements will put more pressure on HEC providers to offer services that are more consistent in quality, more convenient to consumers, more universally available and more cost effectively delivered. More Integrated Counseling Services With many of the anticipated changes resulting from the implementation of the Dodd- Frank Wall Street Reform and Consumer Protection Act, it may be time to attempt to integrate HEC services into the standard home- purchase process as a consumer protection strategy for all first- time homebuyers. Ideally, HEC services should be treated in much the same way as home appraisals or property inspections in the homebuying process, with widely accepted industry standards and standardized fees. Better Use of Technology by HEC Providers Nonprofits will be challenged to make better use of technology in delivering HEC to make these services more efficient and more convenient to consumers without sacrificing quality. This will mean, among other changes, embracing online educational programs, better triage systems and phone counseling services. Stronger Promotion of the Benefits of HEC Services to Consumers and Key Partners In order for partners such as lenders and Realtors to embrace HEC services, the benefits of these services will need to be more clearly demonstrated and marketed to both consumers and these partners. Ultimately, a stronger value proposition is needed if these others are ever to pay a greater portion of the costs of HEC services. In addition, more robust research on the effectiveness of HEC services is needed. More Network-Wide Innovations NeighborWorks America can play a larger role in identifying, promoting and supporting network- wide innovations such as targeted outreach campaigns, online triage systems, online educational programs, phone counseling centers, regional lending centers, and state or regional collaborative strategies to reduce duplication of efforts among network members. Page 32

36 Appendices Appendix A. Key Informants (listed alphabetically by state) Dan McMahon, Manager Home Finance Loan Production Colorado Housing and Finance Authority Phone: Website: Silvina Sansot, Business Development Specialist Colorado Housing and Finance Authority Phone: Website: Chip White, Single Family Programs Administrator Florida Housing Finance Agency Phone: x Website: Karen Young, Home Buyer Education Coordinator Georgia Department of Community Affairs Phone: Website: Julie Gugin, Executive Director Minnesota Home Ownership Center Phone: x103 Website: Michael Haley, Assistant Commissioner Minnesota Housing Phone: Website: George Leocata, Senior Vice President, Single Family Programs State of New York Mortgage Agency Website: Page 33

37 Barbara Johnson, New Century IDA Program Director Experiment in Self Reliance (Forsyth County, North Carolina) Phone: x410 Website: Daniel Kornelis, Director Department of Housing Forsyth County, North Carolina Website: Keir Morton- Manley, Program Development Officer North Carolina Housing Finance Agency Website: Patricia Auberle, Financial Education Programs Director Oklahoma Homebuyer Education Association Phone: Fax: Website: Bob Bobincheck, Director of Strategic Planning and Policy Pennsylvania Housing Finance Agency Phone: Website: Annette Bourne, Assistant Director of Intergovernmental Relations Rhode Island Housing Website: Elaine Hebert, Assistant Director, Homeownership Division Rhode Island Housing Website: Vicki George, Coordinator of Homebuyer Education Tennessee Housing Development Agency Phone: Website: Page 34

38 Kelly Gill- Gordon, Homeownership Education Manager Virginia Housing and Development Authority kelly.gill- Website: Geoff Cooper, Director, Single Family WHEDA (Wisconsin Housing and Economic Development Authority) Website: David Haney, Executive Director Wyoming Community Development Authority Phone: Website: Gregory E. Hancock, President and Chief Executive Officer Wyoming Housing Network Phone: x8 Website: Page 35

39 Appendix B. Interview Protocols for Key Informants I. Background Information Advocates have long maintained that sustainable homeownership begins with educated consumers who have the tools, capacity and options to make good choices about their decision to buy a home, obtain an affordable financial product and maintain their home for the long- term. Ironically, with cutbacks in public resources, there is less funding to support homeownership education and counseling services just as the nation is still reeling from the worst foreclosure crisis in generations. As a result, many nonprofit counseling agencies are struggling to find new and cost- effective ways of delivering HEC services. Housing finance agencies have missions that promote homeownership for first- time buyers, especially for low- and moderate- income households in their states. To successfully reach these target markets, many HFAs have worked closely with nonprofit partners to promote and support HEC services. II. Goals The goal of this applied research project is to document working relationships, best practices and innovative partnerships between HFAs and nonprofit counseling agencies across the nation. The primary focus of this work is to highlight existing or potential sustainable business models for HEC services. III. Methodology 1. Distribution of an online survey to all HFAs. 2. Identification of key housing finance agencies that would be candidates for in- depth telephone interviews about their support for HEC services. 3. Development of interview protocols. The interviews would document what specific HFAs are doing to support HEC, the National Industry Standards and cost recovery issues. 4. Analysis of results from interviews and surveys, documenting partnership examples that have strengthened HEC services and identifying why these partnerships were successful. IV. Interview Questions Follow- up interviews were scheduled with key informants from housing finance agencies and their partners across the nation. The following questions were used in these interviews. 1. Please describe the specifics about your innovative HEC partnership, including: What are the specifics of your support for HEC efforts? How much money is budgeted each year for these purposes? Are the funds essentially grant funds or structured as fee- for- service contracts? If fee for service, what is the specific fee and for what specific services? Page 36

40 What is the source of these funds? That is, are they pass- through funds from HUD or NFMC? 2. What are the results of this partnership in 2011? 3. What are the greatest benefits and challenges of this partnership? 4. Are there some best practices from this effort that you want to share? 5. Are there opportunities for expanding this partnership to reach more consumers? 6. Can you describe your HEC program requirements? How many hours of education and/or counseling are required? Do you allow online training and/or phone counseling? 7. Why don t more borrowers take HEC? How could more consumers be incentivized to take HEC? 8. What are the lessons learned from this partnership? Page 37

41 Appendix C. Detailed Results of HFA Survey on HEC Question 1. Organizational Profile Response Percent Response Count Organization Name: 100.0% 51 Contact Name: 100.0% 51 Contact's Job Title: 100.0% 51 Contact's Phone Number: 100.0% 51 Contact's Address: 100.0% 51 Agency Website: 100.0% 51 Question 2. Is a key part of your agency s mission to assist low- and moderate-income residents to purchase homes and be successful homeowners? Response Answer Options Percent Response Count Yes 100.0% 51 No 0.0% 0 answered question 51 skipped question 0 Question 3. What is the volume of single-family homeownership loans that your agency originated in 2010 and 2011? Answer Options Response Average Response Total Response Count Actual in 2010, number of loans: 1,457 71, Actual in 2010, dollar volume of loans: $172,203,047 $8,437,949, Estimated in 2011, number of loans: 1,402 68, Estimated in 2011, dollar volume of loans: $164,797,692 $8,075,086, answered question 49 skipped question 2 Question 4. What percentage of your 2011 loan production is: Approximate Answer Options Percentage Response Count Mortgage Revenue Bonds (MRB) Conventional 8% 45 MRB Government (FHA, VA or RD/USDA) 86% 44 Non- MRB Conventional 2% 31 Non- MRB Government 3% 30 Other 1% 29 answered question 50 skipped question 1 Question 6. Does your agency make loans to assist homeowners with down payments, closing costs or affordability? Answer Options Response Percent Response Count Yes 88.2% 45 No 11.8% 6 answered question 51 skipped question 0 Page 38

42 Question 7. Does your agency allow second mortgages to assist homeowners with down payments, closing costs or affordability? Answer Options Response Percent Response Count Yes 88.2% 45 No 11.8% 6 answered question 51 skipped question 0 Question 8. Who originates your agency's single-family loans? Answer Options Yes No Response Count Commercial Banks/Lenders Credit Unions Mortgage Brokers Mortgage Bankers Nonprofit Agencies Other (please specify) 8 answered question 51 skipped question 0 Question 9. Please describe your in-house servicing capabilities below. Answer Options Yes No Response Count Does your agency service its own loans? Does your agency track which loan customers receive HEC services? Does your agency provide foreclosure intervention and/or loss mitigation counseling? Who provides foreclosure intervention or loss mitigation on your behalf? 47 answered question 51 skipped question 0 Question 10. Does your agency incentivize or require homeownership education and counseling services for its loans to first-time homebuyers? Check all that apply. Answer Options Incentivize Require Response Count All HFA Loan Products Some HFA Loan Products Which loan products have HEC requirements or incentives? What specific incentives, if any, are offered? 48 answered question 41 skipped question 10 Page 39

43 Question 11. Do any of your agency's partners incentivize or require homeownership education and counseling services as part of a homeownership assistance program your agency is involved with? Check all that apply. Answer Options Incentivize Require Don't Know Response Count Local Government Partners Mortgage Insurer Partners Community Development Financial Institutions Other Nonprofit Partners Foundation Partners Lender Partners If known, please describe a partner that offers specific incentives for HEC services. 21 answered question 45 skipped question 6 Question 12. Does your agency currently provide specific financial or technical support for homeownership education and counseling (HEC) services in your state? Response Answer Options Percent Response Count Yes. Our agency provides support to other HEC providers. 58.8% 30 Yes. Our agency delivers HEC services directly. 13.7% 7 No. 27.5% 14 answered question 51 skipped question 0 Question 13. If your agency directly provides HEC services in your state, please note how these services are delivered. Check all that apply. Answer Options Response Count Provide educational classes or workshops 8 Provide counseling in person or by phone 4 Use an agency- developed online education program 3 Use an online education program such as ehome America 3 Other delivery methods 10 answered question 11 skipped question 40 Question 14. Please note the specific assistance your agency provides to support the delivery of HEC services in your state. Check all that apply. Answer Options Training Convene Meetings Technical Assistance Fin. Support Count Your agency provides support to nonprofit prepurchase HEC providers Your agency provides support for loss mitigation/foreclosure intervention Your agency provides support for other postpurchase counseling services answered question 37 skipped question 14 Page 40

44 Question 15. What are the key reasons your agency supports HEC services? Answer Options Response Percent Response Count We believe it helps prepare borrowers for the complexities 97.5% 39 of the homebuying process We believe it creates stronger and more successful 87.5% 35 homebuyers We believe it reduces loan delinquencies and foreclosures 92.5% 37 We believe it helps source potential low- and moderate- 60.0% 24 income potential borrowers Other reasons (please specify) 11 answered question 40 skipped question 11 Question 16. Do you expect your agency's support for HEC services to increase, decrease or stay the same in the next 2-3 years? Answer Options Response Percent Response Count Increase 11.9% 5 Stay the Same 66.7% 28 Decrease 21.4% 9 Can you briefly explain why? 28 answered question 42 skipped question 9 Question 17. Would you or someone from your agency be willing to participate in a follow-up telephone interview? Answer Options Response Percent Response Count Yes 80.5% 33 No 19.5% 8 answered question 41 skipped question 10 Question 18. If your agency does not support HEC services in your state, please note the key reasons why not. Check the top three reasons. Answer Options Response Percent Response Count Lack of statewide coverage for services 45.5% 5 Delivery is too inconsistent 45.5% 5 Our agency provides HEC services directly 36.4% 4 Lack of quality service providers 27.3% 3 Delivery is too costly 27.3% 3 It slows the loan approval process down 27.3% 3 It puts our product at a competitive disadvantage 27.3% 3 Not sure it adds value 27.3% 3 Other reasons, please describe: 12 answered question 11 skipped question 40 Page 41

45 Question 19. What would it take for your agency to consider supporting (or increasing support) for the delivery of HEC services in your state? Check up to three issues. Answer Options Response Response Count Percent Better ways of promoting the value of HEC to borrowers, Realtors 60.9% 14 and lenders More high- quality and consistent service providers 56.5% 13 Faster and more efficient HEC delivery process 52.2% 12 Less costly HEC delivery process 43.5% 10 Broader statewide coverage for services 39.1% 9 More documentation about the value of HEC services 34.8% 8 Other, please describe 18 answered question 23 skipped question 28 Question 20. Please note your response to these statements about the potential impacts of the loss of HUD Housing Counseling funds in your state. Answer Options Strongly Strongly Response Agree Disagree Agree Disagree Count It will cause significant harm to local counseling agencies It will reduce your agency's capacity for sourcing and educating potential homebuyers. It will reduce the number of low- and moderate- income households that your agency will be able to help attain homeownership. It will not have much impact since counseling agencies only touch a small minority of your homebuyers answered question 51 skipped question 0 Question 21. These questions are about standards for HEC services. Answer Options Yes No Don't Know Response Count Has your agency adopted and/or endorsed the National Industry Standards for HEC? Does your state have its own standards for HEC services? Does your state have certification standards for HEC trainers and counselors? Does your agency provide its own curriculum and standards for its HEC providers? Does your agency make a distinction between homebuyer education and counseling? Does your agency approve of online educational services? Does your agency approve of telephone counseling services? answered question 51 skipped question 0 Page 42

46 Question 22. Has your agency done any studies (or aware of any studies) highlighting the value or efficacy of HEC services? Answer Options Response Percent Response Count Yes 7.8% 4 No 82.4% 42 Not Applicable 9.8% 5 answered question 51 skipped question 0 Question 23. Are you aware of any specific best practices or emerging strategies in the delivery of HEC services? If so, please check the appropriate areas below. Answer Options Yes No Response Count Intake and Triage Outreach and Marketing Use of Technology New or Effective Delivery Models Tracking and Reporting Innovative Partnerships Customer Follow- up Research on Impact or Outcomes answered question 47 skipped question 4 Page 43

47 Appendix D. Reference Materials Baker, C., and J.M. Collins. (December 2004). Analyzing Service Delivery: Homebuyer Education. Fannie Mae Foundation. Baker, C., and J.M. Collins. (April 2005). Measuring the Delivery Costs of Pre-purchase Homebuyer Education. NeighborWorks America. Baker, C., and D. Dylla. (April 2009). Minding Business: An Environmental Scan of Innovative Homeownership Business Models. NeighborWorks America. Collins, J.M., and S. Moulton. (October 2011). Are Public Subsidized Homeownership Programs Too Risky? A Comparison of the Performance of Mortgage Revenue Bond Mortgages and Subprime Loans. Ohio State University and University of Wisconsin- Madison. Collins, J.M., and C. O Rourke. (2011). Homeownership Education and Counseling: Do We Know What Works? Research Institute for Housing America and Mortgage Bankers Association. Herbert, C., J. Turham, and C. Rogers. (2008). The State of the Housing Counseling Industry: 2008 Report. HUD Office of Policy Development and Research; Abt Associates. Mayer, N., P. Tatian, K. Temkin, and C. Calhoun. (2011). National Foreclosure Mitigation Counseling Program Evaluation: Final Report. NeighborWorks America; the Urban Institute. Moulton, S. (2009). Mortgage Revenue Bond Program Analysis: Origination Practices and Borrower Outcomes (Summary Report). Ohio State University. Moulton, S. (2010). Targeting the Underserved: An Evaluation of State Mortgage Revenue Bond Programs. Ohio State University. National Council of State Housing Agencies. (2010) State HFA Factbook. National Council of State Housing Agencies. (2011) State HFA Factbook. National Council of State Housing Agencies and Minnesota Housing. (2010). Homebuyer Training and Support Services Survey for Housing Finance Agencies. National Industry Standards for Homeownership Education and Counseling. Website: NeighborWorks America. (September 2011). National Foreclosure Mitigation Counseling (NFMC) Program: Congressional Update. Page 44

48 Appendix E. Listing of State Housing Finance Agencies, 2012 State Housing Finance Agencies Alabama Housing Finance Authority Alaska Housing Finance Corporation Arizona Housing Finance Authority Arkansas Development Finance Authority California Housing Finance Agency Colorado Housing and Finance Authority Connecticut Housing Finance Agency Delaware State Housing Authority District of Columbia Housing Finance Agency Florida Housing Finance Corporation Georgia Housing Finance Authority Hawaii Housing Finance and Development Corporation Idaho Housing and Finance Association Illinois Housing Development Authority Indiana Housing and Community Development Authority Iowa Finance Authority Kansas Housing Resources Corporation Kentucky Housing Corporation Louisiana Housing Finance Agency MaineHousing Maryland Department of Housing and Community Dev. MassHousing Michigan State Housing Development Authority Minnesota Housing Mississippi Home Corporation Missouri Housing Development Commission Montana Board of Housing/Housing Division Nebraska Investment Finance Authority Nevada Housing Division New Hampshire Housing Finance Authority New Jersey Housing and Mortgage Finance Agency Agency Website hmfa.com Page 45

49 New Mexico Mortgage Finance Authority New York State Homes & Community Renewal/SONYMA North Carolina Housing Finance Agency North Dakota Housing Finance Agency Ohio Housing Finance Agency Oklahoma Housing Finance Agency Oregon Housing and Community Services Pennsylvania Housing Finance Agency Rhode Island Housing South Carolina State Housing Finance and Dev. Authority South Dakota Housing Development Authority Tennessee Housing Development Agency Texas Department of Housing and Community Affairs Utah Housing Corporation Vermont Housing Finance Agency Virginia Housing Development Authority Washington State Housing Finance Commission West Virginia Housing Development Fund Wisconsin Housing and Economic Development Authority Wyoming Community Development Authority Page 46

50 Appendix F. HFA Profiles 1. Minnesota Housing and the Minnesota Home Ownership Center 2. Pennsylvania Housing Finance Agency 3. Wyoming Community Development Authority and Wyoming Housing Network 1. HFA Profile: Supporting a Statewide Intermediary in Minnesota Agencies Involved: Minnesota Housing and the Minnesota Home Ownership Center Innovative Strategy: Since 1993 Minnesota Housing has supported the development and growth of the Minnesota Home Ownership Center, a nonprofit intermediary that now provides oversight, training, and funding for homeownership education and counseling (HEC) services for organizations across the state. Like many agencies delivering or supporting HEC, Minnesota Housing faces decreasing funding and evolving homebuyer needs and trends, both of which have led to refined education and counseling delivery plans for 2012 and beyond. Background: For 40 years, Minnesota Housing has financed and advanced housing opportunities for low- and moderate- income Minnesotans, assisting more than 750,000 households secure or maintain an affordable home. Minnesota Housing is a leader in an alliance of government, private- sector, nonprofit and faith- based community organizations that work collaboratively. In 2012, Minnesota Housing will invest more than $658 million to accomplish these four strategic priorities: Finance new affordable housing opportunities; Preserve existing affordable housing; Prevent and end long- term homelessness; and Mitigate foreclosure through prevention and remediation. The Minnesota Home Ownership Center s mission is to promote and advance successful homeownership in Minnesota, with a focus on serving the needs of low- and moderate- income families and emerging markets. The Center offers a unique approach to homeownership services using a centralized, managed structure. The Center provides leadership and partnerships that promote homeownership preparedness and sustainable homeownership. The Center ensures statewide access to high- quality, consistent services by convening the Homeownership Advisors Network, a group of independent nonprofit agencies that deliver its home ownership education and foreclosure counseling programs. Through these efforts and partnerships, the Center has helped over 100,000 Minnesotans begin and sustain successful homeownership since Page 47

51 Key Innovations and Practices The Benefits and Outcomes of Collaboration and Centralized Services Minnesota Housing played a key role in the creation of the Minnesota Home Ownership Center in Since then the Center has created many benefits for the HEC industry and Minnesota s homeowners alike. Because the Center is a nonprofit (whereas Minnesota Housing is a governmental agency), the Center is better positioned to support a flexible and innovative HEC industry offering new ways to serve consumers, while at the same time delivering a consistent, high- quality product statewide. Minnesota Housing is a strong leader and not only provides direct funding for services to consumers seeking affordable housing, but also promotes excellent policies that benefit many partners in the home- ownership industry. As the nonprofit intermediary, the Center oversees the distribution of HEC funds, certifies programs and their staff, enforces statewide standards and program policies, and assures accurate and detailed measurement of outcomes. (For a detailed summary of program outcomes, see the executive summary of the most recent annual report at hs.cfm.) The Center empowers its Homeownership Advisors Network, a statewide network of nearly 40 community- based public, private and nonprofit providers that offer education and counseling services for homebuyers and homeowners. This support includes a nationally recognized workshop curriculum called Home Stretch, as well as ongoing training and technical assistance to ensure quality program delivery. The network is also provided with an annual competitive funding opportunity called HECAT (Homeownership Education, Counseling, and Training). HECAT funds come from Minnesota Housing, the Greater Minnesota Housing Fund, and the Family Housing Fund. The latest HECAT awards issued in late 2011 included more than $1.4 million for housing counseling, including more than $600,000 for prepurchase workshops and counseling. More than 30 nonprofits received funding for prepurchase programs, with awards ranging from $7,000 to as much as $60,000 per agency. In addition to HECAT funding, the Center conducts more than 20 training workshops annually for network staff members to improve their skills and maintain their certifications. More than 6,500 consumers completed the eight- hour Home Stretch course through more than 500 statewide workshops in fiscal year About a third of those graduates also completed individual counseling; 33 percent of graduates closed on a mortgage. About 63 percent of Home Stretch graduates complete education as a result of lender requirements in order to obtain Minnesota Housing s down- payment assistance loan. Notably, 37 percent of graduates elect to seek education for education s sake only (in other words, not due to lender requirements), and with planned innovative delivery options available in 2012, the Center hopes to see this already strong percentage increase in the future. Page 48

52 Evolving Service Delivery to Reach More Homebuyers at Lower Cost Throughout the country, the weak economy is straining budgets so there are less federal and state funds for housing services in 2012 and beyond. In Minnesota, these stresses are no different, with the state legislature cutting spending sharply in all areas in an attempt to balance the budget. As a result, the last HECAT award the Center received was $423,000 lower than the previous year a 23 percent reduction from FY In response, leadership at Minnesota Housing, the Center and the network agencies have agreed that tough times require even more innovation. One such response has been that some network providers that have offered HEC on a relatively small scale in the past have elected to eliminate these HEC services and focus instead on other key programs. Conversely, those that see HEC as a primary service continue to offer numerous workshops and leverage their HECAT funding to secure additional support from other stakeholders something that is easier to do given their higher annual education and counseling production. The statewide impact of this trend is that the number of workshops offered in 2011 did not drop, and the total number of Home Stretch graduates remained relatively steady compared to Another emerging and innovative response to the current housing market and funding environment is to offer more consumer choice through online education and phone- based counseling. Traditionally, the Center offered only eight- hour classes with optional in- person counseling afterward. In 2012, it will be offering a customized online education option and making it a program policy to offer all homebuyers counseling by phone or in person afterwards. In addition, both the Center and Minnesota Housing believe that many first- time homebuyers, who often start their buying experience online, will also want their education online. The online curriculum is nearing the completion of its pilot phase. This option will appeal to certain buyers and ultimately lead to more Minnesotans, of all income levels, receiving HEC. In addition to more consumer choice and demand, the need for a sustainable approach to HEC also led the Center to create this online education option. Historically, both nationally and in Minnesota, HEC services have been funded by government and foundations, but it is likely that funding from these sources will be more limited for years to come. Online delivery is cost effective and in the future may generate new revenues from consumers who have the ability to pay a reasonable fee for the education. Additionally, the most common trusted advisor in the buying process real estate agents have been reluctant to recommend educational workshops for fear of losing control of their client due to the influence of classroom presenters or delays in the process while waiting for the workshop to take place. Online delivery may mitigate these issues while also helping Minnesota Housing and the Center create a sustainable business model for HEC services. Despite their plans to offer online education in 2012, the Center has no intention of reducing the number of Home Stretch classes being offered. They believe many consumers Page 49

53 will continue to select the workshop option based on consumer survey results that consistently indicate that the best feature of in- person education is what consumers learn from each other s experiences. However, for those needing to close on their loan in less than 30 days, who experience distance or scheduling challenges, or who just prefer the self- paced flexibility of online learning, the web- based alternative will prove attractive. The Center projects the total number of buyers educated and counseled will increase with the additional offerings of online and phone- based services. Key Results and Outcomes The Homeownership Advisors Network of Home Stretch agencies graduated 5,796 households through 541 workshops throughout Minnesota in fiscal year Of these workshops, 145 (27%) were offered in languages other than English or were targeted to specific ethnic or first- generation groups. The vast majority of graduates earn below 80 percent of the area median income, with an average annual household income statewide of $34,477. Network agencies provided counseling services to 2,040 households, and 1,889 households are known to have purchased a home after participating in Home Stretch, representing 33 percent of all graduates. The average home purchase price was $117,000, with an average mortgage interest rate of 4.45%. Participants in both workshops and counseling are primarily unmarried and more than 60 percent are female- headed households. It should also be noted that the Center requires all network members to abide by its Homebuyer Education and Counseling Standards Guide, a 42- page document that mirrors the National Industry Standards for Homeownership Education and Counseling, but adds some additional program requirements in such areas as credit reports, funding requests and draws, data collection, and services to offer to those who are not yet mortgage- ready. Lessons Learned An expectation of both agencies is that they strive for the day when HEC becomes a fully integrated part of the typical homebuying process. In this potential marketplace, the revenue for the HEC would become a standard part of the cost of buying home just as it is for the real estate agent, appraiser, loan officer, etc. If quality education is available through a wide range of delivery methods, first- time homebuyers of all income levels and demographics would benefit greatly from quality education. Contacts: Michael Haley, Assistant Commissioner, Minnesota Housing Julie Gugin, Executive Director, Minnesota Home Ownership Center Page 50

54 2. HFA Profile: Strategic Partnerships Reducing Foreclosures in Pennsylvania Innovative Strategy: With strategic partnerships, the Pennsylvania Housing Finance Agency (PHFA) has demonstrated that foreclosures can be reduced or at least their negative impacts can be mitigated. PHFA s HEMAP Homeowners Emergency Mortgage Assistance Program is a perfect example of how this can be done, and could be a model for addressing foreclosure around the country. Agencies Involved: For many years the HEMAP involved numerous partners, each serving a distinct function. Local community development corporations, faith- based organizations, and HUD- approved housing counseling organizations were responsible for providing counseling and education and helping homeowners complete applications for the loan program. About 114 counseling agencies were participating in PHFA s network and were providing this service in every county of the state. Most of these organizations used NFMC or HUD housing counseling funds to cover the cost of the service. HEMAP was funded by the state of Pennsylvania and PHFA administered the program. Unfortunately, funding for this program ended in June 2011, but still it provides a valuable model to emulate. Background: PHFA has supported affordable housing throughout the state of Pennsyl- vania since It promotes economic development through housing construction and rehabilitation programs, and promotes counseling and education for renters and home- buyers. PHFA is an advocate for all residents who need decent, safe and affordable homes. Key Innovation: HEMAP provided emergency funding to households that were having trouble making their mortgage payments on time and whose payments were 60 or 90 days late. The goal of the program was to keep families in their homes and to help them avoid foreclosure by providing low- interest loans to pay back the amount in arrears. Borrowers were then responsible for repaying their loan. They could borrow up to $60,000 through HEMAP, and their monthly payments were very affordable amounts over a set term. To be eligible, borrowers had to be underemployed or unemployed (by no fault of their own) and/or have had a medical emergency that caused them to default on their monthly payments. Victims of predatory lending were also considered and sometimes allowed to participate in the program. Each HEMAP loan was made based on the household s situation and the extent of the emergency. The household did not have to be below a certain income, but needed to be experiencing a financial hardship due to a personal emergency. Each family participating in this program received housing counseling through a partner organization. Partner agencies also facilitated the HEMAP application for eligible house- holds and were paid $150 by PHFA for each application completed. Any assets from loan repayments went back into the program. Primary funds for the loan program were provided by state appropriations. Page 51

55 PHFA s HEMAP is a great example of how strategic partnerships can help solve a fore- closure crisis. The counseling and education helps to solve the family s existing issue, while also helping to prevent future problems. Plus, preventing a foreclosure helps not only the individual household but the entire neighborhood. Key Results and Outcomes: Approximately 46,000 households have been saved from foreclosure over the past 29 years through PHFA s HEMAP. The average disbursement was about $11,000. However, during 2011 the average disbursement was about $15,000. Over the past few years, PHFA closed about 150 loans a month. Lessons Learned: Don t provide free money. Programs offering a giveaway don t work. It s critical that emergency funding programs include repayment of the loan both to help cover program costs and encourage responsible borrower behavior. Establish strategic funding partners. Although loan programs generate income, stable and long- term funding support is needed for longevity and stability. These funds help to cover the cost of counseling, originating, underwriting, closing and servicing the product. State and federal funders must recognize the value of the program and provide funding to keep the program strong. Focus on financial education. Financial education is an important first step for many families struggling with their finances. It is the key to developing a strong financial future. Connect with local counseling agencies. If possible, create solid partnerships with local housing counseling programs. This marriage works. Building a solid statewide network between counseling agencies and the HFA is useful in delivering statewide services to consumers. Emergency mortgage programs like HEMAP keep people in their homes and can save them from foreclosure. They provide homeowners with an opportunity to recover from a finan- cial crisis and get back on their feet. These programs serve as a stabilizing force in neigh- borhoods and are an excellent tool for preventing neighborhood decline. Even if the family ends up in foreclosure, this type of program helps them to prepare for the next steps in their lives. Every state could benefit from a program like HEMAP. Contact: Bob Bobincheck, Director of Strategic Planning and Policy Pennsylvania Housing Finance Agency Page 52

56 3. HFA Profile: High-Volume Online Education and Phone Counseling in Wyoming Summary Wyoming Community Development Authority (WCDA) and Wyoming Housing Network (WHN) have developed an innovative partnership to support a statewide, cost- effective system for delivering high- quality homeownership education and counseling services to over 900 homebuyers annually since Background In operation since 2005, Wyoming Housing Network s mission is to build healthy, self- reliant families and stable communities throughout Wyoming. WHN has been providing HEC services in Wyoming since Wyoming Community Development Authority is the state housing finance agency and has had a longstanding commitment to providing HEC services to its loan customers. Until 2008, WCDA customers attended monthly classes held across the state at 12 to 14 locations via videoconference facilities hosted by the University of Wyoming. While these classes were successful, they still required volunteer help in each of the localities, forced customers to drive to those locations, and required a full day s labor each month for the instructor of the class. In addition, there were inevitable glitches in the technology. While WCDA was committed to these services, it began looking for alternative delivery methods that were less costly and provided more convenient access for customers. Creating a High-Volume, Sustainable Statewide System for HEC Services After looking at different options, WHN began negotiating with WCDA in 2008 to provide online education services through ehome America, a web- based training program developed by the nonprofit Community Ventures Corporation (based in Lexington, KY). ehome America is based on Realizing the American Dream, the homeownership curriculum developed by NeighborWorks America. ehome America provides 24/7 access and includes numerous interactive activities, worksheets, quizzes and tests. In addition, ehome s content meets all of the National Industry Standards. Customers typically complete ehome America in 6 8 hours. After completing the online curriculum, customers can schedule a counseling session with a WHN counselor to be held either in person or by phone. The typical counseling session lasts minutes. If more time is needed, another appointment is scheduled. In 2009, WCDA and WHN executed a contract for WHN to provide HEC services to all WCDA loan customers throughout the state. WCDA pays a fee ranging from $300 $400 per household (a quarter point of the mortgage amount) to WHN for these services. In addition, customers pay a fee of $35 to take ehome America. WCDA currently requires both education and counseling services for all loan customers. As a measure of its remarkable efficiency, WHN provided HEC services to 906 customers across Wyoming in FY 2011 with just two full- time counselors. Ultimately, 677 of these Page 53

57 customers closed on a WCDA loan in In FY 2010, 964 customers completed HEC services and 722 closed on WCDA loans. During these two years, WHN was the largest homeownership producer in the NeighborWorks network. A demographic snapshot of WCDA s borrowers in indicates that their average loan amount was $143,246; their average income was $46,067; their average age was 32; and 34 percent of borrowers were married. According to David Haney, WCDA executive director, he initiated the contract with WHN for the following reasons: HEC services align with WCDA s mission of promoting sustainable homeownership; The real and perceived value of HEC services to their customers; The challenge of delivering cost- effective HEC services in a large, rural geographic area; As a way to increase WCDA s market share of home purchase loans in Wyoming (WCDA current market share is estimated at 35 percent, well above the levels of many other HFAs); and The partnership between WCDA and WHN As a way to measure the impact of HEC services in terms of the improved performance of loans, customer satisfaction and the enhanced financial condition of its customers. has worked wonderfully. Our support has stabilized the operation of WHN and helped them deliver innovative, cost-effective and high-quality counseling services throughout the state. David Haney, Executive Director, WCDA From WHN s standpoint, the partnership has had many benefits as well. Greg Hancock, WHN president and chief executive officer, suggests that the partnership has provided the following benefits: It has added a stable and sustainable source of fee income for its HEC services; It plays a key role in supporting WHN s mission; It increases WHN s visibility in the state; and It has helped leverage other affordable housing development activities across the state. Lessons Learned HEC services create more prepared and better qualified homeowners. Since WCDA has incentivized or required HEC for its borrowers for more than a decade, it has data to allow examination of the performance of loans for borrowers who received HEC services and those who did not. While a comprehensive study is just underway, the overall performance of WCDA loans has been extraordinary, with serious delinquencies (120+ days late) at just 1.5% as of December 31, Page 54

58 Online education is cost-effective and convenient. Many of today s consumers are too busy or unwilling or unable to travel far to attend classes, especially in rural states like Wyoming. Consumers, especially tech- savvy, younger, first- time homebuyers are increasingly comfortable with web- based training programs that are available 24/7 and can be completed during evenings or weekends from their homes. For those working multiple jobs the flexibility is also important. It s important to recognize the complementary roles that housing finance agencies and NeighborWorks organizations have in delivering high-quality, sustainable homeownership education and counseling services in a state. Both agencies share similar missions and can work in close win-win partnerships to deliver beneficial services to prospective homebuyers. With reductions in federal funding, I think these types of fee-forservice partnerships are the key to the future of nonprofit counseling services. Greg Hancock, President and Chief Executive Officer, WHN Consumers are willing to pay some costs for HEC. Consumers in Wyoming pay $35 to complete ehome America. To date, consumer response to the product has been very good and the modest cost does not appear to be an issue. Counseling is an important component of high quality and comprehensive HEC services. While one- on- one counseling services are more expensive than the online training component, counseling provides individualized advice to potential homebuyers looking in- depth at their credit history, their budget, their home and their overall financial condition. This customized support can be invaluable in helping a consumer become more financially secure and ultimately a successful homeowner. Aggressive marketing is effective. WCDA has developed a humorous multimedia marketing campaign to increase loan demand called First Things First when resources are available. The campaign uses radio and TV spots to stress the importance of home- buyer education as the first step and urge consumers to learn how the process works before buying a home. The call to action is to drive potential homebuyers to WCDA s website. Website visits typically jump between 15 to 40 percent in the weeks after the campaign is implemented. Until other incentives can be offered, requiring HEC is crucial. While HEC services have many benefits, most consumers, lenders and Realtors do not see the long- term benefits and would skip these services if not for WCDA s requirements. All agree that consumer incentives for taking HEC would be a better approach, but in the current environment, it is challenging to provide these incentives and still be competitive. A national intermediary offers great benefits to a local partnership. WHN and WCDA both benefited from the involvement of NeighborWorks America in helping to create this working partnership. NeighborWorks America added significant resources, technical assistance, quality- control systems, and acumen to the relationship. Page 55

59 Contacts: David Haney, Executive Director Wyoming Community Development Authority Gregory E. Hancock, President and Chief Executive Officer Wyoming Housing Network Page 56

60 Appendix G. HFA Best Practices 1. Colorado Housing and Finance Authority 2. Florida Housing Finance Corporation 3. North Carolina Housing Finance Agency 4. Rhode Island Housing 1. HFA Best Practices: Partnership and Support of Homeownership Education and Counseling Service Providers in Colorado; Online Delivery of Homeownership Education Agency Involved: Colorado Housing and Finance Authority, Denver, Colorado. Innovative Strategy: The Colorado Housing and Finance Authority (CHFA) has created a unique partnership with 27 housing counseling agencies across Colorado that has supported both prepurchase and postpurchase prevention counseling services while furthering CHFA s fundamental mission of affordable housing and economic development finance. CHFA believes a well- informed homebuyer becomes a successful homeowner. Therefore, in 2000, CHFA required that all its potential homebuyers and loan recipients complete a CHFA- authorized homebuyer education course. CHFA offers a free, first- time homebuyer and money management class online. CHFA also supports in- person first- time homebuyer education statewide. There are three complementary components to CHFA s innovative partnership with HEC providers: 1. Support for homeownership education and counseling 2. Online homeownership and financial management education 3. Support for foreclosure intervention counseling Background: CHFA helps improve the lives of people throughout Colorado by financing the places where people live and work. The HFA provides fixed- rate financing to homebuyers, small to medium- sized businesses, and multifamily rental housing developers. It also provides education and technical assistance about affordable housing and economic development. CHFA accomplishes all of this work through a network of partners such as banks, developers and local governments. Page 57

61 CHFA was created in 1973 by the Colorado legislature to address the shortage of affordable housing in the state. Since then, CHFA has established itself as the front- runner in the affordable housing industry by financing single- family mortgages for qualifying home- buyers and supporting development of apartments for low- and moderate- income residents. In 1982, when Colorado had economic difficulties, CHFA began making loans to small and medium- sized businesses. CHFA is a responsible advocate for affordable housing and small business issues for the Colorado community. Since 1973, CHFA s financing has served every county in Colorado by: Financing more than 69,000 mortgages to homebuyers; Helping sustain and support more than 35,000 jobs; Financing more than 54,000 residential rental units; and Allocating Low Income Housing Tax Credits for 37,000 residential rental units. Key Innovations and Practices Support for Homeownership Education and Counseling CHFA partners with 27 local, HUD- approved counseling agencies to provide in- person homebuyer education throughout Colorado on a monthly basis. Each agency executes a contract for providing the homeownership education service and complies with CHFA s standardized curriculum and required quality assurance audits. All the agencies provide special accommodation for people with disabilities one agency, the Colorado Housing Assistance Corporation (CHAC), provides a class specifically designed for families with disabilities. CHFA reimburses the housing counseling agencies $50 for every household that completes the in- person homebuyer education class. In 2011, CHFA standardized the curriculum for both the agency homebuyer course instructors and participants. CHFA does not currently track homeownership education participants consumer knowledge or behavior changes using any assessments. Online Homebuyer and Financial Management Education In order to better serve rural Colorado, where there are few housing counseling agencies that provide in- person homebuyer education, CHFA launched its own online education tool, CHFA University (CHFA U). At the time of its launch in 2008, there were no other online homeownership education and counseling products available, so CHFA developed the curriculum and online tool itself. The CHFA U online education tool includes financial management and homeownership education. As a result of implementing the online education tool, more potential homebuyers in rural areas were served and there was less resistance to CHFA s homeownership education requirement on the part of real estate professionals. Page 58

62 Support for Foreclosure Intervention Counseling CHFA is committed to helping Coloradans achieve and successfully sustain homeownership through sound financial decision- making. Toward that end, CHFA has applied for and been awarded four National Foreclosure Mitigation Counseling (NFMC) grants totaling nearly $5.3 million through NeighborWorks America to increase foreclosure intervention activities throughout the state. Using these funds, CHFA has partnered with 13 nonprofit housing counseling agencies from its existing HEC provider network, to provide free, professionally trained foreclosure mitigation counselors services to homeowners at risk of foreclosure. To date, these grant funds have enabled more than 12,000 Coloradans to receive free housing counseling services and have helped many avoid foreclosure. CHFA s existing relationship with its network of HEC providers facilitated CHFA s role as a NFMC grantee and has allowed CHFA to serve as an intermediary for NFMC funds. Since the HEC providers already had contractual agreements with CHFA to provide homeownership education, which included service expectations and quality assurance audits, it was rela- tively easy to extend the relationship to postpurchase, foreclosure intervention counseling services. CHFA utilized its compliance division to ensure NFMC grant compliance. In addition, CHFA implemented two innovations in administering the NFMC grant: (1) the creation of a subgrantee termination agreement, and (2) monthly reports generated by CHFA for its subgrantees on their NFMC grant data upload status, as far as deficiencies and duplicate records. CHFA is also a proud sponsor of the Colorado Foreclosure Hotline, HOPE. Since its inception in 2006, four out of five homeowners who have met face- to- face with a housing counselor through the hotline have found a successful resolution to their foreclosure situation. Lessons Learned HEC Partnerships 1. Choose agencies that have standard operating procedures and share a similar or identical profile, such as a HUD approved, not- for- profit or government agency. 2. Implement a contract for services with clear requirements, guidelines and expectations. 3. Closely monitor each service provider s performance for quality assurance by regularly visiting their classes and providing constructive feedback, with a six- month follow- up. Page 59

63 Online Education In 2008, CHFA launched its own online education tool, CHFA University (CHFA U) when there were no other online homeownership education and counseling products available. The overall experience with the product, content and delivery has been very positive. However, in the current austere economic climate, other HFAs may consider implementing existing online tools, such as ehome America. Of course, there are pros and cons to creating an online education product versus using an existing product. An important consideration for CHFA has been the ongoing costs of content development, revisions and database maintenance of CHFA U. When using another online tool such as ehome America, these aforementioned issues do not apply because they are already built into the cost of the product. Contacts: Dan McMahon, Manager Home Finance Loan Production Colorado Housing and Finance Authority Silvina Sansot, Business Development Specialist/Non- Profit Colorado Housing and Finance Authority Page 60

64 2. HFA Best Practice: Florida Housing Finance Corporation s Using Technology to Efficiently Provide Program Information to Buyers Summary: Florida Housing Finance Corporation has developed and implemented an online tool that allows consumers to easily acquire information about its first- time homebuyer program, specific to the consumer s county and household size. Background: Florida Housing s mission is to increase affordable housing opportunities and ensure that its programs meet the needs of the citizens of the state. Florida Housing continues to work with local governments, nonprofits, elected officials and other partners to underscore the importance of affordable housing in Florida s communities. Currently, between 3,500 and 4,000 homebuyers use Florida Housing s first mortgage and down- payment assistance products each year. Key Innovation: Florida Housing receives hundreds of calls each month about its first- time homebuyer program and related loan products. With a staff of just four, fielding these calls and taking the time to answer specific questions proved to be very time- consuming. The First Time Homebuyer Wizard is its solution to this challenge. The Wizard is easily found on the agency s website, allowing buyers and other interested parties such as real estate agents or nonprofit housing organizations to quickly find what they need. The Wizard provides details on loan products and rates, down- payment assistance, income limits, purchase- price limits, a list of local lenders, and links to find specially trained Realtors and approved homeownership education providers. Key Outcomes and Lessons Learned Available since 2006, the Wizard has been a great time saver for Florida Housing staff. They are able to quickly triage up to 600 calls a month and then direct buyers to use the online tool. We couldn t live without it! It really helps our limited staff handle inquiry calls effectively, so they can manage their other work as well, said Chip White, single family programs administrator of Florida Housing. Page 61