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HereÕ the real reason why homebuyers just don’t fully understand mortgages

Fannie Mae study questions mortgage professionals and consumers

A new study by Fannie Mae examines homebuyer education, and explains why many buyers aren’t being educated.

Most consumers interviewed in the study had little or no awareness of pre-purchase homeownership education classes unless they were required to take one.

For this study, Fannie Mae conducted 54 individual in-depth interviews and eight two-hour mini-group discussions across four markets, among lower-income first-time homebuyers as well as professionals, real estate agents and loan officers, who have experience working with lower-income first-time homebuyers and homeownership education or counseling.

Despite the low amount of participation in educational programs, the study showed all participants agreed homeownership education gives borrowers knowledge, confidence and employment to be financially and emotionally prepared for homeownership.

However, homeowners rarely participate in these programs unless they are required to take educational courses and were referred to by loan officers for loan qualification requirements or benefits such as down payment assistance programs, the study showed. In fact, very few even knew the range of programs offered.

“There is considerable fragmentation in the HE landscape,” the study states. “Virtually no consumers and only a few professionals understand the range of HE providers and HE offerings.”

So why is there such a lack of education in the market? Fannie Mae’s study explains that as well. Here are the results for homebuyers, lenders and real estate agents:

  • Homebuyers: HE involves time and inconvenience. It's “another hoop to jump through” during an already stressful time. It sounds like school and involves coming up with more money if a fee is involved.
  • Lenders: HE is one more thing on the long list of paperwork to make the deal happen. Loan officers have a deal-centered, transactional mindset. Some are concerned that borrowers will learn something that could kill the deal or lead them to other lenders.
  • Real estate agents: There is an overall “not my job” mindset. Real estate agents have no concrete incentive or motivation to refer their clients to HE. They view lenders as experts on loan-related steps and process and want to guide or control their clients themselves. Like loan officers, they are concerned that borrowers might connect to another real estate agent or deal.

However, while there may or may not be an incentive to educate homebuyers on an individual deal, there is certainly incentive to having an overall higher-educated industry.

United Wholesale Mortgage recently called out lenders for not educating consumers more after a study from the National Association of Realtors showed 87% of non-homeowners think they need at least 10% down in order to purchase a home.

But the study shows lenders and consumers alike don’t see the personal incentives to educating homebuyers.

“There is almost no voluntary participation by consumers or professionals,” the study states. “Consumers see the value in these programs only after the fact and will not be motivated to participate without concrete incentives.”

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