FNMA Pre-Purchase Counseling to Prevent Foreclosure: Is it Fair?
It appears that the new push is to prevent foreclosure problems in the future by educating prospective home buyers. FNMA just announced that it is requiring pre-purchase counseling for any borrowers using its MyCommunityMortgage program, as well as any other loan requiring nontraditional credit to qualify.
Let’s take a closer look at this program.
According to FNMA’s website, the MyCommunityMortgage loan is “an affordable, flexible mortgage for underserved markets.” That’s code for “urban-dwelling minorities.”
The website goes on to list the benefits of this program to lenders: ”
And if FNMA is going to target homebuyers who are using a loan product that targets minorities, then it won’t take long before someone raises the race issue on these kinds of requirements.
Now that the perfect storm of conditions that led to this mess has passed, suddenly everyone in the mortgage industry has come up with the brilliant idea of foreclosure prevention through pre-purchase edcuation. While I’m certainly not against education in general, I’d like to see if there’s any real link between pre-purchase education and default rates. AND, I’d also like to establish whether that link is causative or correlative.
Furthermore, if we’re going to require this sort of training. then by the looks of the data, we ought to consider educating ALL borrowers, as Fair, Isaac certainly wasn’t able to condense borrower risk into a single, three-digit variable.
I certainly believe that in principle, prevention is cheaper and far more effective than the cost of a cure. And when ideas like mandatory pre-purchase counseling are put forth, it’s normal and natural for someone to ask of a critic, “How can you be against education?”
Anyone who’s spent any time at all reading about behavioral economics knows that humans don’t always behave as we’d expect them to, AND “common sense” is neither common nor sensible in a number of areas.
There have been a number of “ideas” that have been floated to help prevent foreclosure, and a number of them have already been written into legislation. Some of these appeared to be sensible on the surface. Many (all?) of these have failed, and quite frankly, it was obvious to thoughtful people in the industry that they would not work.
Many of the proposed “solutions” are clearly the result of a brainstorming session that could have been featured in an episode of Dilbert.
Before the next list of mandates is foisted upon this industry- both lenders and borrowers- I’d like to ask that someone demonstrate specifically HOW it would help and offer some proof as to WHY we should believe that it is likely to work.
It would be nice if these ideas were held up to scrutiny, and their proponents were forced to vigorously defend them before we even THINK about implementing them.
The core issue here is that the current foreclosure crisis is not going to be solved through intervention, either public or private. We’re not going to make this issue “go away” with any sort of policy initiative. The only thing we can hope to do is mitigate this problem, and help qualified homeowners to prevent foreclosure.
But we’re not going to save everyone. And it’s likely that, whether we like it or not, more people will ultimately lose their homes than keep them. It’s also clear that housing prices are going to have to fall further before expenditures in this category reach sensible levels. Until we wring the excess debt out of the system, and get household budgets in line with economic reality, this problem will not end.
No amount of education, legislation, or governmental pressure are going to change this harsh reality.
So if our dear “leaders” would kindly understand that they’re not going to “solve” the foreclosure crisis. At best, anything they do will serve to mitigate it.
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