A study sponsored by the Mortgage Bankers Association (MBA) showed that despite evidence that some home pre-purchase education and foreclosure prevention programs are effective, inconsistent proof of the effect of counseling indicates the industry remains clueless about what works and what does not work.
In summary, one of the authors of the study wrote, the short answer to whether we do we know what works, is “no."
The Homeownership Education and Counseling: Do We Know What Works? study conducted by J. Michael Collins and Collin O'Rourke of the PolicyLab Consulting Group for MBA's Research Institute for Housing America, confirmed that in practice, the results from education and counseling programs “vary significantly.”
Results were based on reviews of 18 separate sample evaluation studies most of which are plagued by biases, the authors wrote. There are however a few encouraging findings.
For example, while many studies found no positive effects from pre-purchase programs, some of these programs helped reduce “the incidence of any form of mortgage default” by 34%. And at least one study suggests programs may result in accelerated pre-payment of mortgages.
Over 2.1 million clients received varied types of one-on-one housing counseling from HUD-approved agencies in full-year 2010, the method that is widely recognized as the most effective approach to loss mitigation.
About 245,000 received pre-purchase education, of which about 17% were reported as purchasing a home and another 26% as anticipating to buy within three months.
Up to 1.4 million received foreclosure prevention counseling. According to the study those who participate in default counseling are more likely to have their loans modified. U.S. Department of Housing and Urban Development (HUD) data suggested “counseling agencies were involved” in more than 301,000 loan modifications in full-year 2010.
HUD reported also show that 205,000 received help with home repair or a reverse mortgage, 278,000 received help related to rental housing, 37,000 received counseling on homelessness.
Over the past decade, long before the current housing downturn, concerns about whether “Americans are sufficiently financially literate to make the complex decisions required in the ever-changing financial marketplace," helped proliferate pre-purchase homeownership education and counseling programs, researchers wrote.
Going forward, the drive to expand homeownership education or counseling nonetheless should continue to support a more stable homeownership and prevent the negative impacts of market factors such as drops in property values.
MBA executives recognize that beyond the unavoidable differences between the outcome in theory and practice, reasons to expect that education and counseling “could and should be effective,” include the evidence showing the effectiveness of these programs is not there primarily because of problems with the design of existing studies.