In the wake of budget cuts for housing counseling programs, the Mortgage Bankers Association (MBA) released a report on the effectiveness counseling entitled "Homeownership Education and Counseling: Do We Know What Works?" Sponsored by the MBA's Research Institute for Housing America (RIHA), the study found widely varying results that made estimated the effects of these programs difficult.
In a review of 18 studies evaluating counseling programs, the report identified the most compelling reasons for the provision of counseling programs:
- For potential homebuyers, formalized education and counseling programs can lower the costs of obtaining information about how to buy a home and obtain a mortgage;
- Objective, third-party counselors or educators can help clients avoid emotional judgments that may not be in the client’s long-term interest;
- HEC programs can facilitate more efficient transactions, make more information available and reduce the level of support needed from real estate and mortgage professionals;
- To the extent education or counseling support stable homeownership, the public has an interest in expanding these programs to prevent the negative impacts
"Public funding for homeownership counseling and education has increased considerably over the past few years in response to the housing crisis, though future funding levels in a time of budget austerity remain unclear. Although there are several reasons to expect that education and counseling could and should be effective, the evidence showing the effectiveness of these programs is simply not there, primarily because of problems with the design of existing studies," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Moreover, there is no compelling indication regarding which methods of counseling or instruction might work best. Future studies should adhere to more rigorous research designs, so that the results can be confidently generalized to inform policy regarding these programs."
The report noted that over 2.1 million people received one-on-one housing counseling from HUD approved agencies in fiscal year 2010. The majority of those, 1.4 million were related to foreclosure prevention. Reverse mortgage counseling was lumped in with home repair counseling with a combined total of 205,000.
The findings in some studies did conclude that some pre-purchase programs reduce the incidence of mortgage default by as much as 34 percent, but other studies did not find similar results.
"In practice, the results from education and counseling programs vary significantly," said Michael Collins of PolicyLab Consulting Group who conducted the study. "A fundamental issue arises when researchers attempt to estimate the effects of these programs-- borrowers who participate in these programs are different from those who do not-- in ways that do not show up in the data, which makes it difficult to generate robust research results. In summary, do we know what works? The short answer is --no."
Overall, the report states, the studies evaluated do suggests that counseling programs are effective, but the issues with the quality of data provide for a lack of unequivocal evidence. The problem lies the way the available studies were conducted and a natural bias created in attempting to compare participants, who voluntarily participate in counseling programs and nonparticipants.
The report suggests that to improve the quality of data and conclusiveness of findings, further studies should be more highly resourced large-scale randomized studies. Results measured should be broadened beyond just default or foreclosure to include other payment patterns. Additionally, variations of method of counseling delivery, such as group, in person, and telephone, should be evaluated in comparison to each other.