HUD Report Finds Value in Housing Counseling
According to a new HUD report released June 29, home buyer education and counseling leads to improved mortgage literacy, greater appreciation for communication with lenders, and better underwriting qualifications. The report, The First-Time Homebuyer Education and Counseling Demonstration: Early Insights, is based on a study of 5,800 low, moderate, and middle-income first-time home buyers across 28 metropolitan areas in the country. HUD is conducting the study because previous research on the effectiveness of housing education and counseling has been of limited value because of a lack of resources, small sample size, and nonexperimental design.
The study’s results indicate that home buyer education and counseling could significantly diminish the risks associated with homeownership and help home buyers make better financial decisions. HUD plans to continue this research until 2020 to discover long-term impacts of home buyer education and counseling and its effect on financial success among different subpopulations and demographic areas.
HUD’s report explains that the study involves three large national lenders, 63 HUD-approved housing counseling agencies, and two remote service providers. Each family was randomly assigned to one of three treatment groups: remote (online education and telephone-based counseling), in-person (group workshops and individual counseling), and a control group that was not offered any services. HUD found that 65 percent of early participants who were offered remote home buyer education and counseling initiated services versus just 25 percent of those who were offered in-person education and counseling.
Katherine O’Regan, HUD’s Assistant Secretary for Policy Development and Research, said, "[T]he early findings of this study underscore the need to continue supporting housing education and counseling programs, and the particular importance of making remote education and telephone counseling easily accessible to prospective homebuyers." She also said, "[O]ver the next four years, we expect to produce long-sought answers about the impact of home buyer education and counseling on mortgage literacy and preparedness, homebuyer outcomes, and loan performance."
Mortgage literacy was tested by a four-question quiz. Treatment group members performed at higher levels relative to the control group. Treatment group members also reported that they were more likely to call their lenders before missing a mortgage payment, leading to improved lender-borrower relationships. With respect to the control group, they are also more likely to have a credit score of 620 or higher, because home buyer education and counseling leads people to correct inaccuracies in their credit reports or reduce future unfavorable credit events, such as late or missed payments. There was no indication that counseling and education led to enhanced budgeting practices, though counseling emphasizes the importance of budgeting.