Housing Counseling Process Evaluation and Design of ... - HUD User

Of the 60 intermediaries and SHFAs interviewed for the study, about half indicated that lenders and
mortgage companies should be more involved in funding homeownership-related counseling because
they benefit from the counseling in the form of more on-time mortgage payments and fewer
foreclosures. However, a large number of organizations specifically mentioned that they do not want
more lenders and mortgage companies funding housing counseling because of the potential for client
steering and other conflicts of interests. As one intermediary put it, “there needs to be an independent
way of funding housing counseling that does not drive the borrower to a specific lender.” Another
intermediary commented that “third-party funding (government or fundraising) best serves the client
because it lessens the chance of receiving biased information.”
Nevertheless, there is an enduring sense, particularly for pre-purchase counseling, that counseling
agencies should have some way to benefit from the revenue generated from the home purchase
process. For example, one agency responding to the survey suggested that certified housing
counselors or their agency should be allowed to receive a commission from a home sale if the
homebuyer received pre-purchase counseling for at least a year. Several intermediaries reported that
they were actively thinking about this problem. They also suggested that HUD should play a leading
role in evaluating the possibility for greater private sector involvement. As they put it:
“We need to figure out how housing counseling should situate itself in the marketplace. Thus
far, housing counseling has operated outside the market, to avoid charges of steering and
profiteering, but there should be some way of doing it that allows the non-profit agencies that
do counseling to realize some of the profits from the home purchase transaction.”
(Intermediary)
“We think there should be ways for lenders to rationally support homeownership preparation
programs. Everyone in the industry keeps circling around it, but we need to figure out a
business model that works and makes sense.” (Intermediary)
“Basically, there are a number of agents that buyers touch during the home purchase process
(lenders, realtors, homebuilders, etc.). Each of these partners in the cycle should play a role
in funding housing counseling. The problem is that the pain of foreclosure on stakeholders is
so diffuse that it is tolerable to each of the stakeholders individually. Someone needs to
calculate the aggregate cost of foreclosure to the U.S. economy and all the stakeholders ought
to pay a pro-rated share.” (Intermediary)
To the extent that lenders play a more active role in funding housing counseling, intermediaries also
see a role for HUD in setting policies that address concerns about conflicts of interest:
“The most useful role for HUD to play is to broker relationships with lenders and to take the
lead on rethinking the position of housing counseling versus the marketplace.”
(Intermediary)
“Overall, someone needs to keep an eye on the ‘conflict of interest’ that exists when funding
comes from lenders. It is hard for organizations to turn away from a lender if they are giving
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Chapter 9. Policy Considerations