Study finds recent housing counseling cuts made in the dark
When lawmakers cut funding for housing counseling programs as part of recent budget negotiations, they sparked continued public outcry from consumer advocates and researchers who claim the cuts came with little insight on how these programs impact mortgage performance. Republicans and Democrats struck a late-hour deal in April on how to continue funding the U.S. government. But among the cuts, was $88 million used to fund nonprofit counseling groups approved by the Department of Housing and Urban Development. A study released by the Mortgage Bankers Association showed while these programs existed long before the housing downturn, there has been little research done on the exact effect they have on mortgage performance. In theory, researchers said, the programs would help homebuyers obtain information and education at a low cost, while avoiding emotional judgments and reduce the borrowers' reliance on real estate agents and mortgage brokers. Housing counseling proves specifically effective when a borrower first falls behind on a mortgage, according to J. Michael Collins, who conducted the study with Collin O'Rourke of the PolicyLab Consulting Group sponsored by the MBA. From what Collins and O'Rourke looked at, homeowners who participated in default counseling were more likely to have their mortgage modified. The MBA study looked at 18 separate evaluations of different programs. Some programs, researchers said, reduced any form of mortgage default by as much as 34%. According to the MBA, more than 2.1 million clients received one-on-one counseling in 2010. Republicans insist such cuts, however painful, are needed to get U.S. debt management back on track. The 2011 budget only lasts until September, when Congress will pick up the debate again for next year's budget. "The American people understand we can’t continue spending money we don’t have, especially when doing so is making it harder to create jobs and get our economy back on track," said House Speaker John Boehner (R-Ohio). Still, the National Foundation for Credit Counseling, a nonprofit financial counseling agency, stepped up the pressure on lawmakers to restore funding. "It is inconceivable that funding for housing counseling would be cut in the midst of the housing crisis," said Susan Keating, president and chief executive of the foundation. "The NFCC urges Congress to do the right thing by reinstating the funding moving forward, thus allowing millions of homeowners to receive the help they need to make wise housing decisions, including avoiding foreclosure where possible." According to the NFCC, more than 4 million families received housing counseling in 2009, preventing mortgage delinquency for 2.6 million households and avoiding nearly 834,000 foreclosures. NeighborWorks America, one of the largest counseling providers in the country found well below 10% of the borrowers who come to them in foreclosure cases received counseling when they bought the home. But the effect on reverse mortgages could be even more pronounced. Federal law requires a borrower to receive housing counseling before taking out a Home Equity Conversion Mortgage, a reverse mortgage backed by the Federal Housing Administration. Roughly 205,000 borrowers received reverse mortgage counseling in 2010. This service was cut from the 2011 budget. Overall, the results from the programs "vary significantly," researchers said, highlighting the need for more research, especially before such expansive cuts are made. "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," Collins said. "In summary, do we know what works? The short answer is 'no'." Researchers said while data on the direct effect of more programs is lacking, they admitted the budget cuts were ill-advised at best and counterproductive to a housing recovery at worse. "To the extent education or counseling supports stable homeownership, the public has an interest in expanding these programs to prevent the negative impacts of unsuccessful homeownership," Collins said. Write to Jon Prior. Follow him on Twitter @JonAPrior.