The U.S. Treasury's Community Development Financial Institutions Fund (CDFI) wants to make sure unscrupulous subprime lenders can no longer take advantage of buyers who don't have the education to make the best choices financially.
To help prevent this from happening again the CDFI recently awarded $2 million for pilot projects. Five programs located in California, Colorado, Georgia, New Hampshire, and North Carolina each won $400,000 to run their pilot programs. These startups will be demonstration projects that can be adapted elsewhere in the country. The five pilot programs will develop interactive online education; financial coaches; financial counseling targeted to the low-income/low-wealth population; financial workshops with one-on-counseling; and home-buyer mentoring.
Only by educating more borrowers will the cycle of foreclosures be broken.
One of the most innovative of these programs is at the New Hampshire Housing Finance Authority. It partnered with local nonprofit housing counselors to develop an interactive online educational tool, according to Lynn Lippitt, who wrote the grant application. The authority will work with people who have housing-choice vouchers, which they can use to rent a home or buy a home. More than 10,000 low-income, low-wealth individuals in New Hampshire are eligible for these vouchers.
The problem is "they don't know how to handle the money if they buy a home," Lippitt said. "A lot of people got in over their heads when a mortgage lender told them you can afford a payment without fully considering other expenses." She said the program will help people develop the financial skills needed to determine what they can truly afford.
Before the program participants will be assisted with home buying, they will use the interactive online tool, and work with a housing counselor to develop a budget, save on their own, and repair any damage to their credit score.
The program will be developed over a two-year period and, when ready, will be available to other organizations nationwide for free. While it will be an online interactive tool -- so participants can use it any time of day that is convenient for them -- they still will need to work with a counselor to complete the program and help them attain their goals.
Another innovative project was proposed by the Consumer Credit Counseling Services of WNC, which serves 18 counties in Western North Carolina. It plans to develop neighborhood financial coaches that live in the communities they serve. The coaches will assist people with serious financial problems, such as damaged credit, and coordinate their efforts with credit counselors. Ultimately the financial coaches will help people develop the necessary skills to save money and enter an onsite homeownership program.
Three other recipients are:
- The Mission Economic Development Agency in San Francisco, which will focus on comprehensive financial education through workshops, plus one-on-one coaching sessions and peer support activities.
- The Boulder County Housing Authority, which will use a combination of counseling, classes, workgroups, home-buyer mentoring and financial incentives to help people prepare for home ownership.
- Resources for Residents and Communities of Georgia, which primarily plans to use counselors to help program participants develop the skills to maintain monthly budgets, reduce their debt and achieve personal savings goals.
The work of getting people up to speed on the basic financial details for buying a house is difficult and time-consuming. But unless the average American has a better understanding of what's at stake when they sign the dotted line, we're likely to witness a repeat of the national housing implosion we're still recovering from.
Lita Epstein has written more than 25 books, including "The Complete Idiot's Guide to Personal Bankruptcy and The Pocket Idiot's Guide to Improving Your Credit Score."
Home-finance tools and homes for sale in these communities and elsewhere can be found at AOL Real Estate.