In light of recent Department of Housing and Urban Development budget cuts to HUD’s housing counseling programs, a Mortgage Bankers Association study shows that potential borrowers who take part in counseling programs and prepurchase education may be more likely to pay their mortgages on time. However, the study evidence is not consistent and compelling, according to MBA.

Other findings of the study, titled, “Homeownership Education and Counseling: Do We Know What Works?” show that those who participate in default counseling are more likely to have their loans modified, than those who do not. Additionally, based on a number of separate evaluation studies, some prespurchase programs were found to reduce the incidence of any form of mortgage default by as much as 34%. (Other studies found no such effects.)

The study report cites data from HUD indicating that 2.1 million clients received one-on-one housing counseling from HUD-approved agencies in FY 2010, covering all services. Broken down into different types of services, 205,000 received help with home repair or a reverse mortgage and 1.4 million received foreclosure prevention counseling.

“Over the past decade, concerns have been raised about the extent to which Americans as a whole are sufficiently financially literate to make the complex decisions required in the ever-changing financial marketplace,” said J. Michael Collins of The PolicyLab Consulting Group, which conducted the study. “In response to these concerns, pre-purchase homeownership education and counseling programs proliferated before the current housing downturn. 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 (e.g., drops in property values due to foreclosure).”

View the full report.

Written by Elizabeth Ecker