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Study Examines the Impact of Homebuyer Education and Counseling on Mortgage Performance

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RISMEDIA, April 29, 2011—Potential homeowners who participate in pre-purchase education and counseling programs may be more likely to pay their mortgages on time, although the evidence on this point is not consistent and compelling, according to a study released today by the Mortgage Bankers Association (MBA). The study also finds that those who participate in default counseling are more likely to have their loans modified.

The study titled, “Homeownership Education and Counseling: Do We Know What Works?”, which was conducted by J. Michael Collins and Collin O’Rourke of the PolicyLab Consulting Group and sponsored by MBA’s Research Institute for Housing America (RIHA), examines the effectiveness of the predominant types of pre-purchase and post-purchase counseling and education, and discusses recommendations for future studies on the effectiveness of these programs.

“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,” says Collins. “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.”

Collins goes on to explain that, in theory, homebuyer education and counseling could help in three ways:

• 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

• Homeownership education and counseling programs can facilitate more efficient transactions, make more information available and reduce the level of support needed from real estate and mortgage professionals

Collins explains that, in practice, the results from education and counseling programs vary significantly. “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,” states Collins.

“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,” says Michael Fratantoni, MBA’s Vice President of Research and Economics. Fratantoni notes that 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. “There is no compelling indication regarding which methods of counseling or instruction might work best,” continues Fratantoni. “Future studies should adhere to more rigorous research designs, so that the results can be confidently generalized to inform policy regarding these programs.”

For more information visit www.mbaa.org.

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