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posted on 10 October 2016

Moving First-Time Buyers Off The Fence: Solving The Millennial Homebuyer Puzzle

from the St Louis Fed

-- this post authored by Doug Dylla and Dean Caldwell-Tautges

With the low-interest-rate environment and relatively stable home prices, it seems to be a perfect time for first-time homebuyers to enter the market. Instead, 2016 is shaping up to be a modest year for home sales, especially for millennial buyers.

Given all of the benefits of homeownership - including increasing wealth, security, family stability, community involvement and educational achievement - many communities and industry players have been looking for creative ways to engage millennials and encourage them to pursue homeownership sooner rather than later.

First-time homebuyers have represented 20-40 percent of total home sales over the past 10 years, according to the National Association of Realtors. Most first-time buyers are 25-44 years old; their actions have helped drive the housing market and have been an engine for economic growth across the nation.

Certainly millennials and other potential first-time buyers face many barriers to homeownership, including high-cost housing and soft job markets. Or they have significant debt, often in the form of student loans, that prevents them from saving for a down payment or even qualifying for a mortgage.

Educating Buyers Online Benefits Everyone

Another barrier for younger homebuyers is their lack of knowledge about the complexities and nuances of the process, which can be rooted in fears related to what they witnessed during the recent housing collapse and recession. Nonprofit counseling agencies across the country have been a great source for pre-purchase education and counseling services that help fill this information gap and encourage buyers to move ahead with confidence. By offering comprehensive educational workshops and individualized advice, these agencies reach 200,000 potential buyers annually, according to the U.S. Department of Housing and Urban Development (HUD). Many lenders encourage their first-time homebuyers to participate in these programs because of benefits such as smoother underwriting and closings; better understanding of the terminology and process; more realistic expectations; and improved loan performance with significantly fewer delinquencies and defaults, as documented by many creditable studies (see Table 1).


Independent Studies Showing Benefits of Homebuyer Education and Counseling

Topic and ResearchersKey Findings
Reduced loan delinquencies

Avila, Nguyen and Zorn, 2013

First-time buyers who received education and counseling had a 29 percent reduction in delinquency rates.
Improved financial health and increased knowledge

Staten, Elliehausen and Lundquist, 2002

Borrowers who received education and counseling had

significant increases in their credit scores and/or had improved overall credit health.

More efficient transactions

Hartarska, Gonzalez-Vega and Dobos, 2002

Borrowers are better able to measure "ability to pay" and select better loan products.
Increased mortgage sustainability

Neil Mayer, Urban Institute, 2011

Counseled borrowers are 67 percent more likely to remain current on their mortgages.

One perceived downside of traditional homebuyer education is that many nonprofits are constrained with limited resources, resulting in workshops sometimes offered just once a month and filling up quickly. The resulting delays in homebuyer education cause concerns for both lenders and potential homeowners. Thankfully, over the past several years, new options for these services have been developed with high-quality online education courses - such as eHome America ( - that help meet the demand for the service without the delay.

eHome America was developed in 2009 by an acclaimed nonprofit housing counseling agency in Lexington, Ky., to serve residents throughout the rural parts of the state. It has since expanded nationwide. The organization is supported by a network of 450 HUD-certified counseling agencies and used by the U.S. Department of Agriculture, over 15 state housing finance agencies and numerous lenders.

Over the past five years, eHome has served more than 200,000 homebuyers across the nation. The customers have been very diverse. As expected, 44 percent of eHome customers in 2015 were internet-savvy millennials in their peak homebuying years; 35 percent were minority households; 54 percent had incomes under $50,000 while another 15 percent had incomes over $75,000.

Of special note, the largest referral source of eHome customers in 2015 was from lenders (57 percent). This suggests that many lenders believe that eHome America is an asset and resource for their homebuying customers.

"We're seeing nonprofits and lenders partnering to offer online education to more than 250 homebuyers every day," said Milt Sharp, president of the eHome Network. "It's been exciting to see how together we can inform and motivate first-time buyers while at the same time giving them the foundation for long-term success as homeowners."

From a lender's standpoint, there are many benefits to using eHome America, including the following:

  • The course is always available online for $99.

  • The program meets HUD-required content and national industry standards so borrowers can easily qualify for special mortgage programs from housing finance agencies (HFAs), Freddie Mac, Fannie May, federal home loan banks (FHLBs), the Federal Housing Administration (FHA), etc.

  • The course is completely compatible with smart phones and tablets.

  • Banks can strengthen their connections with nonprofit agencies operating in their markets to improve their Community Reinvestment Act (CRA) programs (promoting access to quality homebuyer education is a CRA-qualified service, so the program may lead to mortgage loan opportunities and help meet CRA-qualified lending expectations).

  • Income statistics from eHome document that a high percentage of customers fall within low- and moderate-income (LMI) ranges for most areas, which supports the CRA program.

  • The course is updated to address the latest TILA/RESPA Integrated Disclosure (TRID) rules.

eHome America also has a unique revenue-sharing structure with local counseling agency partners that helps these agencies become more efficient, more sustainable and less dependent on government funding for delivering these important services.

Celebrating Partnership: Central Bank and Beyond Housing

Central Bank in St. Louis has successfully used eHome America to reach millennials and prepare them for homeownership through a partnership with Beyond Housing, a local nonprofit agency.

Christa Cunningham, community development officer at Central Bank, reports, "Our partnership with Beyond Housing and their online homebuyer education course is a key component of our mortgage lending program. The online education course provides preparation and resources that help LMI households realize their dream of homeownership."

The Beyond Housing class is always available online and doesn't delay the loan process. Potential buyers save time, prefer the convenience of online education at their own pace, and save travel and child care costs. In the past three years, Beyond Housing has used eHome America to provide homebuyer education to more than 1,700 homebuyers in the region.

Chris Krehmeyer, president and CEO of Beyond Housing, said, "eHome America took us to new places. Today, we have more referring partners and can easily reach homebuyers throughout the greater St. Louis region."

eHome America provides necessary information in an easy-to-use format, filling in knowledge gaps and allowing the homebuying process to continue smoothly without delay. Successful completion of the course prepares potential homeowners to make informed decisions and it meets the homebuyer education requirements for many federal, state and local first-time homebuyer programs. As one participant said, "[The course] conveys an encyclopedia of knowledge, absolutely crucial for the potential homebuyer.... By the time I was done, I felt like a realtor!.... I could start, end and pick up where I left off without any confusion or endless scrolling. The organization of the course...made using it as easy and intuitive as reading a cookbook."

Doug Dylla is a principal at Doug Dylla Consulting. He served as the national director of homeownership programs at NeighborWorks America from 1993-2006, served as an advisor to the NeighborWorks Center for Homeownership Education and Counseling, and as a member of Freddie Mac's Affordable Housing Advisory Committee. Dean Caldwell-Tautges is a principal at Dean Caldwell-Tautges Consulting. He has served as the director of counseling at the Homeownership Preservation Foundation. Dylla and Caldwell-Tautges have assisted with the development of eHome America.



Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

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