WASHINGTON, D.C. – (RealEstateRama) — The U.S. Department of Housing and Urban Development (HUD) today published early findings from a rigorous, large-scale, random assignment study on the benefits that housing education and counseling provides to first-time homebuyers. Early results from The First-Time Homebuyer Education and Counseling Demonstration are encouraging and suggest homebuyer education and counseling may lead to favorable results for first-time homebuyers in terms of mortgage literacy and preparedness, homebuyer outcomes, and loan performance.
This critical study will help confirm whether first-time homebuyer education and counseling can expand access to credit and help borrowers make better choices to achieve housing and financial stability. Although there have been numerous recent studies documenting the effectiveness of housing counseling, this study is groundbreaking in its scale, experimental design, elimination of any selection bias, and expected length that the families will be followed.
Between September 2013 and January 2016, HUD enrolled a diverse sample of more than 5,800 prospective first-time homebuyers across 28 metro areas. 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 homebuyer education and counseling initiated services versus just 25 percent of those who were offered in-person education and counseling.
“The 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” said Katherine O’Regan, HUD’s Assistant Secretary for Policy Development and Research. “Over the next four years, we expect to produce long-sought answers about the impact of homebuyer education and counseling on mortgage literacy and preparedness, homebuyer outcomes and loan performance.”
The preliminary impacts of the study on the “early enrollee” sample of 2,377 participants include:
- Improved mortgage literacy.Participants in a treatment group performed better a four-question mortgage literacy quiz than their control group counterparts.
- Greater appreciation for communication with lenders.Treatment group members are more likely to report that they would contact their lender before missing a mortgage payment. This finding indicates that education and counseling are successfully encouraging participants to engage productively with their lenders in times of distress.
- Improved underwriting qualifications.Treatment group members are more likely than their control group counterparts to have a credit score of 620 or higher. This finding shows that education and counseling are helping treatment group members correct inaccuracies in their credit reports, reduce bad credit events such as late or missed payment, or both to push their credit scores over the 620 threshold.
- No evidence of improved budgeting practices.Treatment group members are no more or less likely than their control group counterparts to compare a budget with their actual spending.
The study’s early findings suggest that homebuyer education and counseling could be a cornerstone of successfully expanding homeownership opportunity and decreasing mortgage delinquency and foreclosures.
On June 22nd, the Harvard Joint Center for Housing Studies issued its annual State of the Nation’s Housing report showing a continued decade-long downward trend in homeownership rates, while also noting that the vast majority of Americans indicate a preference for homeownership and that homeownership remains a key component of wealth building potential. Understanding the extent that education and counseling can facilitate homebuyer success at gaining and keeping a mortgage is critical to mapping the future homeownership strategy for America.