Homeownership Counseling Helps Keep Modified Loans Current

Just three weeks after Congress restored $40 million in its budget for homeownership counseling, a new study by the Urban Institute reports that counseling greatly increased the ability of homeowners to stay current once they cured a serious delinquency or foreclosure.

Counseled homeowners were at least 67 percent more likely to remain current on their mortgage nine months after receiving a loan modification cure, according to the Urban Institute. A small part of this effect is attributable to the impact of counseling on the size of monthly payment reductions. However, a significant part is attributable to other positive impacts of counseling, such as helping homeowners improve their financial management skills and assisting them in managing relationships with servicers.

The study also found that National Foreclosure Mitigation Counseling made it more likely that homeowners would receive a loan modification cure in the first place—increasing by at least 89 percent the relative odds of modification cures for counseled homeowners compared to non-counseled ones. The government’s Homeownership Affordable Modification Program amplified this positive effect. In the period before HAMP, 8 percent of homeowners receiving counseling assistance had modification cures, compared to 5 percent who did not receive counseling. Post-HAMP, 17 percent of homeowners receiving counseling assistance had modification cures, compared to 9 percent without.

HUD’s restored $40 million housing counseling funds will be distributed as grants to hundreds of programs and state housing finance agencies across the country. Roughly $36 million will be used for helping homeowners avoid foreclosure, thwarting mortgage scams and teaching buyers how to purchase or rent a home. Another $4 million will be used for reverse mortgage counselors.

The Urban Institute’s three-year evaluation the National Foreclosure Mitigation Counseling program used a representative NFMC sample of 180,000 loans and a comparison non-NFMC sample of 155,000 loans to isolate the impact of NFMC counseling on loan performance through December 2010.

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