- The Washington Times - Friday, February 28, 2003

Programs abound to help first-time home buyers prepare financially for purchasing a home or to find down-payment and closing-cost funds, but what happens after the home is purchased?

For some buyers the move from renting to owning can be an easy transition, but for others it's a treacherous path through financial difficulties that sometimes end in foreclosure.

Many housing counseling agencies that provide homeowner education programs also provide post-purchase counseling to help buyers maintain the financial balance needed to continue as homeowners.

The basics of budgeting and saving are taught by these organizations before a home is purchased, but most families benefit from the continued monitoring of finances after the settlement.

Many of these same counseling agencies can also provide financial advice and assistance in the event a homeowner has difficulty paying the mortgage.

"Homeownership is a vital aspect of community revitalization," says Mark Burneko, spokesman for Neighborhood Reinvestment Corp., the founders of the NeighborWorks Network. "We want people to be stakeholders in their community, so we provide post-purchase counseling to make sure they are able to stay in their homes."

"The best way to prevent foreclosures is a combination of prepurchase counseling and postpurchase counseling," says Marvin Adams, vice president of HomeFree USA. "We're extremely proud of the fact that not one of our clients has ever had a foreclosure. We continuously stay in touch with our clients, usually for at least two years, sometimes for three or four years. We see about 1,000 people every month in our classes and counseling sessions."

Prepurchase counseling programs, geared to first-time home buyers, focus on the nuts and bolts of the home-buying process and the financial preparations needed to buy a property.

"During postpurchase counseling we realize that the clients now know how to buy a house, so we focus on how they need to maintain the home they're in and keep up with the payments," says Mr. Adams. "The reason a lot of people run into trouble after they buy a home is that they want to buy furniture to fill the house, a new car to go along with it, and then they run into an overload of debt. In our classes we advise people to go to garage sales and yard sales to pick up extra furniture, and we offer classes in how to do basic home maintenance projects on your own."

Many new homeowners will be tempted by the flood of credit-card and home-equity line-of-credit offers that will fill their mailboxes almost as soon as the settlement papers are signed. All postpurchase counseling agencies advise against taking on any new debt for at least sixth months to two years after buying a home, to make sure that the family can handle the mortgage payments and other costs associated with homeownership.

At the Virginia Housing Development Authority (VHDA), classes offer a soup-to-nuts approach to homeownership.

"We tell our clients what to look for during the home-buying process, including the importance of attending the home inspection and learning all about how to maintain the systems in your home," says Michele Watson, assistant director of single-family development programs for VHDA. "We give people a breakdown of maintenance tips for fall/winter and spring/summer, things people need to do every year, such as cleaning the gutters and checking the weather-stripping so that they don't run into huge repair bills. We recommend an annual service check on the heating and cooling systems, too."

VHDA's classes also offer financial advice which can be valuable before and after a purchase.

"Our No. 1 priority is to counsel people to never buy more house than you think you can afford," says Ms. Watson. "People sometimes don't understand that just because a bank says you can afford a certain mortgage payment, that doesn't mean you have to spend that much or should. If you're getting ready to buy a new home it's a good idea to take the amount of money which is the difference between your monthly rent and your anticipated mortgage payment and put it in the bank for a few months to get used to living with less money."

Each counseling agency recommends that homeowners set aside emergency savings which can pay their mortgage and other bills if they run into unanticipated financial trouble.

"We recommend that people set aside at least three months' worth of expenses as soon as they can," says Mr. Adams. "In a perfect situation we'd recommend six month's worth of savings, but we recognize that that can be pretty difficult."

At the Association of Community Organizations for Reform Now (ACORN) Housing Corp., housing counselor Darlene Anderson says, "We advise people to put aside 20 percent of their annual income so that they are prepared for emergencies and they aren't relying on credit cards. We also tell people who are in a two-income household to buy their home based on one income only. That way, if one of the homeowners loses a job, or one becomes pregnant and wants to stop working for a while, the mortgage can still be paid. People need to be prepared for those potential situations."

At HomeFree USA, the counselors recommend a minimum of two months of expenses kept in reserve, with three months preferable.

Postpurchase counseling at the 220 nationwide NeighborWorks Network organizations also focuses on savings and budgeting.

"Everyone is always so excited to get to the closing when they buy their first house, but then shortly afterward reality sets in," says Mr. Burneko. "People suddenly realize they aren't renting anymore and that no one will come fix their heat for them. We work closely with people after they have bought a home to be sure they are budgeting appropriately, aggressively saving money and watching their credit so that they don't get overextended."

Job loss, illness, divorce and simply getting overextended financially are all reasons families begin to have trouble paying their bills, and the same housing counseling agencies that advise consumers before they buy a home can help them find a solution to their financial problems as homeowners.

"If people are starting to feel overwhelmed by their monthly bills, they need to start by looking at their budget and prioritizing their spending," says Mr. Adams. "A good strong budget will do a lot toward solving financial problems. People should understand that they must always pay their mortgage first, that the mortgage is the most important bill they have."

Housing counseling agencies provide free budgeting classes and free individualized help for people struggling with their finances.

"We sit down and work out a budget with our clients to help assist them with their problems, and we can also negotiate with their lenders to work out a payment plan of some type," says Ms. Anderson. "People should always set aside some money for their mortgage payment in a separate account and not spend that money on anything else. A bank is more willing to work with you if they see that you have some money set aside which you can use to start a repayment plan."

Beyond revising the family budget, consumers who have missed a mortgage payment or anticipate missing one should immediately act to resolve the problem.

"Initially, most people find it embarrassing to realize that they are having trouble paying their bills," says Mr. Adams. "But people need to be proactive and aggressive when they are having problems. The first thing anyone should do if they think they cannot make their mortgage payment or they are already behind on their payments is to call their lender. If they are not comfortable doing that, they should call a [U.S. Department of Housing and Urban Development]-approved counseling agency."

HomeFree USA has a "Mortgage Assistance Program" that can help their clients if the problem is a temporary issue lasting only one or two months.

According to Ms. Anderson, "Don't wait until you've missed three months of mortgage payments to get in touch with a counselor or your lender. A lot of financial institutions won't do much until after three months have gone by, but immediately after three months, the attorney's fees start racking up and the debt level skyrockets. If someone has missed one or two payments, we can usually negotiate with the lender to gradually pay back the missed payments by making a one-and-one-half payment or less for a couple of months until the loan is caught up again."

At VHDA, Sandy DelMonaco, manager of default administration, says, "We encourage our customers to call us the minute they are having financial difficulty. VHDA has many programs which can help people. Our goal is to keep our customers in their homes, and if they need a little time or breathing room to work out their problems, we try to help them with that.

"We counsel our borrowers and send out financial forms and a loss mitigation team to go over the numbers and determine whether they can make their mortgage payments," she says. "If not, we suspend or defer their payments for a period of time, maybe three months or so, as long as they can provide the expectation of future income. We are very flexible and can arrange a repayment schedule where the consumer would pay one payment plus one-third of a payment once they are back on their feet. Another option that HUD offers is a 'soft second loan' which reinstates the mortgage and then allows the borrower to repay it in three to five years. Ninety-five percent of the time we are able to develop work-out plans as long as the customers cooperate with us."

NeighborWorks Network organizations can also provide counseling on a case-by-case basis, offering short-term financial help to some candidates, along with assistance in restructuring a loan.

Sometimes the financial difficulties are so severe that bankruptcy or foreclosure may seem to be the only solution.

"VHDA has a preforeclosure sale program in which we work with the customer to sell the property so as to avoid foreclosure," says Ms. DelMonaco. "Another option can be a 'deed-in-lieu-of-foreclosure,' which is not as damaging to the credit rating."

Ms. Anderson sometimes recommends bankruptcy if people can then make their mortgage payments and hold onto the house.

"If someone's in a real bind, it often makes the most sense to just sell the house and find something more affordable," says Ms. Anderson.

Homeowners experiencing financial difficulties may be tempted to refinance their homes if they are able.

"There's no shortage of people who want homeowners to refinance, especially homeowners with financial problems who will be candidates for subprime loans," says Mr. Burneko. "Predatory lenders will target these people so they strip the equity from their homes. Counseling agencies can help people avoid these types of lenders."

Says Ms. Anderson, "If you are trying to refinance to solve financial problems, make sure you go with a reputable bank and make sure you understand everything you're signing. Sometimes borrowers get stuck with a balloon payment in five to seven years, and they don't understand that this means the entire loan is due at that time.

"People can contact ACORN ahead of time and show them the terms of the loan they are about to get, and we'll make sure that it's legitimate," she says. "Also, by law, consumers always have three days to rescind the loan agreement. So if someone has rushed to sign papers and they haven't paid attention to what they have signed, they can also come to ACORN within three days with the papers to have them checked out."

Ms. DelMonaco says, "Always go first to your lender if you are thinking of refinancing because they may want to work with you rather than have you leave their business.

"Consumers need to be concerned about the interest rate, the points, the actual annual percentage rate they will pay, and whether there is a prepayment penalty before they choose to sign any loan papers," she says, "but obviously, refinancing is not an option for many people. If they are not paying their mortgage, they will have likely lost ground with other creditors, as well, and will not qualify for another loan."

More info:

•Association of Community Organizations for Reform Now (ACORN) Housing Corp.: 202/547-9295; www.acornhousing.org

•Catholic Charities of the Archdiocese of Washington: 202/526-4100, Ext. 206; www.catholiccharitiesdc.org

•Consumer Credit Counseling Service of Greater Washington, 202/682-1500; www.debtfreeforme.com

•District of Columbia Housing Authority: 202/535-1445; www.dchousing.org

•Fannie Mae Foundation: 800/7FANNIE; www.homepath.com

•Federal Home Mortgage Corp. (Freddie Mac) Foundation: 703/903-2000; www.freddiemac.com

• Greater Washington Urban League: 202/265-8200; www.gwul.org

•HomeFree USA: 202/526-2000; www.homefreeUSA.org

•Housing Counseling Services Inc.: 202/667-7006; no Web site

•Latino Economic Development Corp.: 202/588-5102; www.ledcdc.org

•Lydia's House: 202/563-7629; no Web site

•Marshall Heights Community Development Corp.: 202/396-1200; www.mhcdo.org

•Maryland Department of Housing and Community Development: 800/756-0119; www.dhcd.state.md.us

•Near Northeast Community Improvement Corp.: 202/399-6900; no Web site

•Neighborhood Reinvestment Corp. (NeighborWorks Network): 202/220-2300; www.nw.org

• University Legal Services: Northeast, 202/547-4747; Southeast, 202/645-7175; www.dcpanda.org

•Virginia Housing Development Authority: 800/968-7837; www.vhda.com

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