Protecting credit during the COVID-19 crisis
Rebecca Steele, President and CEO National Foundation for Credit Counseling
Rebecca Steele is the President and Chief Executive Officer of the National Foundation for Credit Counseling (NFCC). Rebecca brings more than 20 years of experience managing some of the nation’s largest and complex residential mortgage banking businesses. This includes experience in managing retail mortgage originations, managing servicing portfolios, and working directly with national housing nonprofits and consumer advocates.
Q. What can prospective homebuyers do to protect their credit should they be laid off or lose their jobs during the COVID crisis?
Communication and fast action are essential for keeping your financial obligations on track during a significant financial disruption, following layoffs or income reduction. In the case of the current coronavirus pandemic, most major lenders and credit card issuers have programs in place to help people keep their accounts in good standing while giving them a temporary break on monthly payments. People should first contact a nonprofit credit counseling agency for guidance regarding their circumstances and, when necessary, follow that with communication
with outreach to lenders and creditors to request payment relief and other available benefits. The same discussion should also take place with utility providers, landlords, and other service providers that require regular payments.
Q. Which is better to weather the crisis -- access to savings or credit?
Drawing from emergency savings is the preferred way to manage through this crisis in situations where there has been a reduction or loss of income. Still, the reality that many Americans face is that they simply don’t have enough savings set aside for that purpose. Keep in mind that the recommended minimum amount of emergency savings should equal to three months of net income per household. That makes it considerably harder for individuals and
families to avoid borrowing to cover necessary expenses when they don’t have those funds available.
Q. Recent research by Freddie Mac and the Urban Institute suggests that credit education early in life may be the most effective way to improve homeownership rates among African Americans. What is your view?
While I agree with the findings of that research, I also believe that the effort to improve homeownership rates for African Americans and other underserved populations shouldn’t end there. One of the greatest tragedies of our lifetime is the fact that there are fewer African American homeowners now as a percentage of the population than there were just before the implementation of fair housing legislation in the late 1960s. That is a tremendous disgrace and is not the result of one systematic failure, but several. Apart from early financial education in schools, a more deliberate and focused approach is necessary to reach African American renters with the message that they can have a realistic pathway toward reaping all of the benefits of homeownership. That is the intent of our Envisioning Homeownership program and a mission about which we are very passionate.
Q. What can be done to improve credit management skills among young buyers?
Getting debt under control can be difficult, especially for young buyers who may be juggling student loans, in addition to high-interest credit card debt and auto loans. The key to success is finding the right balance between financing and managing the flow of income for ongoing expenses, including the prioritization of savings. Having money set aside in a savings account can help reduce dependency on debt at times when there are unexpected expenses or financial setbacks. Without the safety net of savings, debt management becomes difficult and, in some cases, impossible. Credit counseling can play an essential role for those who have already fallen behind on their creditor payments and need assistance getting back on track affordably. For others who are struggling but still managing to stay afloat, those same credit counseling resources can provide budget and financial guidance to make money management less stressful.
Q. Anything else you want to share with our audience?
A sizable number of renters who believe that they have no pathway toward homeownership are actually in a position to become homeowners sooner and more affordably than they might expect. Having expert advice and a network of support helps people overcome the barriers, perceived or real, that stand in the way of success. That’s where the services offered by NFCC Member agencies can help remove the obstacles that stand between prospective homebuyers and their dream of homeownership.