1/31/2005

Homeownership and Consumer Knowledge

How do consumers keep abreast of what is offered to them with the vast array of types of loans and loan sources? That is a question the federal agencies have grappled with for some time, as the model for loan underwriting has changed in the loan industry to one of automated underwriting driven largely by FICO scores of the consumers. The stretching of underwriting criteria by Fannie Mae and Freddie Mac led to an explosion of providers, funders and approaches in the early 1990's. The huge diversity of loan programs and providers cut into the homeownership education counseling programs.

"--the homeownership counseling industry is at a crossroads. The mortgage market has radically changed and originations are dominated by risk-based pricing driven by automated underwriting. Servicing also is increasingly driven by technology. And while predatory lending practices have consumed an enormous amount of attention and effort, the legitimate subprime market is maturing and offering fair options to many borrowers previously shut out of the prime market. Consumers are presented with a dazzling array of product options, and the rise of the Internet has brought the application process into the digital age. In this context, we explore what insights modern research literature has to offer about homeownership counseling." If you want to view the entire Harvard University study, take a look here. (© 2004 President and Fellows of Harvard College.)

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