Housing Officials to Home Buyers - Know Before You Buy

By Christine Dunn

RISMEDIA, Nov. 28, 2008-(MCT)-Like greed itself, predatory lending always finds a way to survive, even as the foreclosure crisis tightens its harsh grip on the economy.

This year, the Federal Reserve issued new rules aimed to curb predatory lending practices. Rhode Island passed its own predatory lending law, the Home Loan Protection Act, which went into effect last year.

In January 2010, the U.S. Department of Housing and Urban Development will require lenders to use a new “good faith estimate” form to give borrowers clear, concise information on interest rates, loan terms and closing costs.

But Rhode Island’s nonprofit housing developers say one of their basic tools, educating buyers about financial literacy — how to adhere to a budget, navigate a home purchase and deal with the costs of homeownership — is an important part of foreclosure prevention. Buyers are taught how to identify and qualify for safe, affordable loans.

Carla DeStefano, the executive director of SWAP (Stop Wasting Abandoned Property), said that of the 120 houses her nonprofit group sold in the past 10 years in and around South Providence, 3% have gone into foreclosure.

She said she attributes this to the mandatory home buyer education the clients received. Most of SWAP’s buyers have incomes that fall between 60% and 80% of the area’s median income, she said.

“And those who have experienced foreclosure, it’s because of divorce, or a death in the family — it has nothing to do with subprime lending,” she said.

Dulce Delgado, director of ACORN Housing’s Providence office, agreed that income alone is not a predictor of financial savvy. Delgado’s job involves counseling homeowners at risk of losing their homes to foreclosure and attempting to renegotiate loan terms with lenders.

Delgado also runs a first-time home buyers class once a month.

“I have clients that make $90,000 with two incomes that are facing foreclosure,” she said. “It’s affecting everyone.”

DeStefano said it’s unfortunate that the subprime lenders aren’t required to have their borrowers undergo eight hours of mandatory homebuyer education from a HUD-approved agency, as most nonprofit developers do, but she said the education will be required of buyers participating in the federal Neighborhood Stabilization Program.

Rhode Island will distribute its share of the federal program money, $19.6 million, to buy and repair abandoned and foreclosed properties in neighborhoods that have been identified as particularly hard hit by the housing crisis.

DeStefano admits that more widespread homebuyer education alone could not have prevented the foreclosure crisis, but she thinks it would have prevented a good number of foreclosures.

She said her agency, in conjunction with the Housing Network of Rhode Island, plans to begin offering homebuyer education to people thinking of buying foreclosed property. The groups recently held a pilot class for 10 people, and are planning a class that will be open to the public on Jan. 10.

DeStefano said many people may be enticed by bargain-basement priced foreclosed property — without planning for the inevitable costs of rehabilitating an abandoned or derelict property that may have been stripped of pipes or a heating system.

“I think we have a duty as borrowers to know what we’re getting into,” Delgado said.

“If we were more honest with borrowers, it would definitely make it easier,” she said. But “you can still fall into that trap when you’re dealing with salesmen. And once you sign on the dotted line, you’re on your own.”