Homebuyer class lowers foreclosures

Study finds better outlook for participants

Akiah Jones and 22 other renters soldiered through an eight-hour homebuyereducation class Wednesday, all determined to have a home to call their own.

Just in the first two hours, instructor Kendra Love of the nonprofit United Housing Inc. covered the advantages and disadvantages of home ownership, the difference between home-equity loans and home-equity lines of credit, and the importance of creating and sticking to a family budget.

“I just want to get a stable environment for me and my two daughters,’’ said Jones, a 25-year-old Bartlett resident who checks out houses and neighborhoods daily. She wanted to learn the steps to take before applying for a home loan.

She came to the right place, according to a first-of-its-kind study on the effectiveness of such homebuyer-education classes.

The research by Vanderbilt University’s Peabody College shows that among participants in a down-payment assistance program offered by the Tennessee Housing Development Authority (THDA), the odds of foreclosure were 42 percent lower for those who completed a home-buyer education class compared to those who did not.

The study’s author, doctoral student Scott Brown, exploited a rare opportunity to compare homebuyers in 2002 who were identical in every way except that some took the classes and others did not.

In the first half of 2002, recipients of the then-new THDA down-payment assistance did not have to take the classes. But that July, the agency started requiring the course. Otherwise, the demographic, geographic and financial characteristics for all the re-

cipients that year were nearly identical.

By the end of a seven-year study period, 10.6 percent of the borrowers who had taken the class had been foreclosed upon compared to 17.6 percent of those who did not take the class.

“This is very helpful from a scientific perspective because it largely controls for factors other than home-buyer education when comparing one group to the other,’’ Brown said.

United Housing’s mission is to increase home ownership, especially among moderate- and low-income residents. But those groups of homebuyers are the ones most vulnerable to foreclosures.

The local foreclosure rate has improved since the Great Recession. The 2016 midyear report by RealtyTrac, which markets foreclosed properties, shows that one in 1,512 houses in Shelby County was in some stage of foreclosure (involving a default notice, scheduled auction or bank repossession). In February 2012, one in every 480 housing units was involved in a foreclosure.

Tim Bolding always knew at a “gut level’’ that the home-buyer education classes make a difference. But the United Housing’s chief executive described the academic affirmation as “a relief. ... It was one of those things you know but couldn’t quite prove.’’

He can now more confidently tell mortgage lenders “send your customers here and this is what happens.’’

The class teaches three major things, Bolding said: What it takes to get a home loan; how much house a family can afford; and the homeowner’s continuing responsibilities after they buy.

“They say, ‘I’ve been a renter all my life, my parents are renters, and now all of a sudden I got a house. What do I do?’ ” Bolding said. “That’s a huge revelation for a lot of people.’’

Jones and the other class participants Wednesday received a certificate, good for up to two years, that qualifies them for loan and down-payment assistance.

Last fiscal year, 530 people completed the class conducted by United Housing. Eighty-six percent of United Housing’s homebuyers are like Jones: Women under 45 years old, Bolding said.

The class “is a relatively short intervention,’’ said Brown, the researcher. “Taking an eighthour class is enough to change the whole life of a mortgage.’’

But he acknowledged the class is not enough to combat other factors that can lead to foreclosure, such as job loss.

Brown’s research found that borrowers who took the class were much more resilient if financial woes hit the family. They tended to be aware of action they could take or help they could seek if they got behind, he indicated.

“It does seem to be something that could help change a fatalistic view or may encourage people to work out an arrangement (with the lender) or seek help from a foreclosure-counseling agency,’’ Brown said.

The class on Wednesday was something of a reality check for Jones.

“I know I need to cut back on a lot of things, especially spending with my daughters,’’ she said.

“I (already) stopped eating out and I cook more now, so that’s a good thing. But I need to really budget and actually keep my money in my savings account I have,’’ she said.