Financial Literacy and Housing Counseling

Updated 2026-05-17

Financial literacy refers to the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. For mortgage loan originators (MLOs) and consumers, strong financial literacy is crucial for making informed decisions related to borrowing, saving, and managing debt, especially in the context of homeownership.

Housing counseling involves providing education, guidance, and resources to consumers to help them understand and manage the responsibilities and complexities of homeownership. It is a key component of consumer protection in the mortgage industry, aiming to support long-term homeownership sustainability by equipping borrowers with necessary information and decision-making tools.

Key Aspects and Scope

Housing counseling offers personalized guidance, often through one-on-one sessions with certified counselors, addressing specific borrower situations and concerns. Its scope can cover various aspects of homeownership, including:

• Pre-purchase advice and home buying process
• Rental counseling
• Mortgage delinquency and default resolution
• Foreclosure avoidance
• Post-purchase support
• Credit issues

The counseling empowers borrowers to make more informed decisions and better manage their mortgage and overall financial well-being.

Programs and Initiatives

CreditSmart Program

The CreditSmart program is a comprehensive financial education initiative developed by Government Sponsored Enterprise (GSE) to help consumers understand and manage their personal finances, make informed decisions about homeownership, and sustain it successfully. It is a key resource for homeownership education.

The program's primary goal is to improve financial literacy among consumers, particularly those aspiring to or currently owning homes. It covers a wide range of essential financial topics, including:

• Understanding Your Credit: Focuses on VA-Approved Credit Underwriter and Underwriting Standards, credit reports, credit scores, and responsible credit use.
• Managing Your Money: Teaches fundamental budgeting skills, saving strategies, and effective debt management.
• Getting a Mortgage Loan: Guides consumers through the mortgage application process.
• Avoiding Predatory Lending: Educates individuals on how to identify and protect themselves from predatory-lending practices.
• Protecting Your Identity: Provides information and strategies for preventing identity-theft.

CreditSmart is designed for broad accessibility, offering:

• Multiple Formats: Available as an online course and through instructor-led training sessions.
• Multiple Languages: Offered in both English and Spanish to serve a diverse population.

By equipping consumers with critical financial knowledge, CreditSmart aims to prepare them for the responsibilities of homeownership, reduce financial risks, and promote long-term financial stability. While the document does not specify direct regulatory mandates for such programs, it serves as a significant initiative by a GSE to support consumer financial well-being in the housing market.

Specific Requirements

For ARMs with Negative Amortization

For Adjustable-Rate Mortgage (ARM)s (ARMs) that allow for Federal Housing Administration (FHA), and where the Borrower (Consumer) is a Borrower (Consumer), lenders are required to ensure the borrower receives housing counseling. This requirement is designed to mitigate the significant risks associated with negative amortization by ensuring that new homeowners fully understand how their loan balance can increase and the potential impact on future payments.

The counseling helps borrowers:

• Understand the mechanics of negative amortization.
• Evaluate the long-term financial implications.
• Develop strategies to manage their mortgage and avoid financial distress.

Relevance to Form 1103

The Supplemental Consumer Information Form (Form 1103) includes a section to record whether a borrower has completed a housing counseling program. This section should be completed if required by the Fannie Mae Selling Guide (B2-2-06) for a particular transaction, or if the borrower obtained counseling even if not explicitly required.