The Bigger Picture of Housing Counseling

In a recent report from Urban Institute, the organization seeks to answer how beneficial housing counseling can be by specifically looking at NeighborWorks America’s homeownership education and counseling program in order to determine how these programs could be of greatest use as well as how effectively these programs can improve loan performance.

“Housing counseling has been designed to serve typically those of low-income and those who have smaller savings,” said Bing Bai, research associate from Urban Institute. “These people are usually the ones who might have trouble understanding the process of buying a home and getting a mortgage.”

In looking at NeighborWorks, the report shows that the program’s nationwide network of affiliates offers homeownership education and counseling throughout the country and it is required to provide a homeownership education and counseling program or establish a partnership with an organization that meets the minimum requirements of homeownership education and counseling, as defined by NeighborWorks America for its National Homeownership and Lending Programs.

A 2013 report that examined loans made between 2007 and 2009 found that NeighborWorks homeownership education and counseling was correlated with a nearly one-third drop in the likelihood of serious mortgage delinquency. This new report conducted by Urban Institute uses a similar although not identical methodology to extend and expand that analysis to loans originated after the financial crisis, from 2010 to 2012.

Urban Institute compared the characteristics of homebuyers who received NeighborWorks services with all homebuyers in Home Mortgage Disclosure Act (HMDA). The report determined that NeighborWorks clients who receive pre-purchase education and counseling services are more likely to be African American, Hispanic, low-income, and female than the general population of home purchase borrowers.

"The ultimate goal of counseling is to increase long-term sustainability and success in being a homeowner," said Bai. "Any borrower can use housing counseling, and with these programs, borrowers are less likely to be delinquent or go through foreclosure in the future."

Urban Institute’s research shows that buyers who receive homeownership education and counseling from NeighborWorks achieved significantly better loan performance than comparable buyers did without NeighborWorks services. Holding all other things equal, it was found that the delinquency rates of 90 days or more for NeighborWorks loans were 16 percent lower than those rates for non-NeighborWorks loans. Bai believes that this data represents just one of the ways housing counseling can be of great use.

“Counseling in general helps these people create a budget, strengthen their credit to maximize their chances of obtaining the lowest possible monthly rate, and also set up a realistic timeline for the purchase,” said Bai. “Counseling can also help connect these people with experts to get the most out of the home buying process.”

To read the full report by Urban Institute click HERE.