Housing Counseling Prepares Families for Homeownership

Housing Counseling Prepares Families for Homeownership

Since 1968, the Department of Housing and Urban Development (HUD) has provided grants for counseling programs to help consumers find, finance, maintain, rent, or own a home. To better understand the nature, outcomes, and effectiveness of these services, HUD initiated a series of studies, beginning in 2008 with “The State of the Housing Counseling Industry,” which presented the first systematic overview of the housing counseling industry, the and the clients it serve.

Now, two new reports add to the literature on housing counseling programs. These reports — “Pre-Purchase Counseling Outcome Study” and “Foreclosure Counseling Outcome Study” — are designed to document the circumstances of families enrolled in two different types of housing counseling: foreclosure prevention and pre-purchase counseling. The study sample includes a broad sample of HUD-funded housing counseling agencies across the country. This article, part one of two, presents the findings of the “Foreclosure Counseling Outcome Study.”

The “Foreclosure Counseling Outcome Study” documents the extent and nature of foreclosure counseling services, mortgage remedies, and housing outcomes among a broad sample of clients as well as the characteristics of those clients.

Key findings from the report include the following:

• Most study participants had tried to contact their servicer when they first fell behind in their payments but had not been successful in negotiating with their lenders.
• With a counselor’s help, 69 percent of study participants obtained a mortgage remedy, and 56 percent were able to become current on their mortgages.
• Nearly 70 percent of clients who sought counseling before becoming delinquent were in their home and current on their mortgage payments at the study’s 18-month followup, whereas only 30 percent of clients who were 6 or more months behind at the time they entered counseling were in their home and current at followup.
• Telephone counseling clients tended to have higher incomes, higher savings, were less likely to be members of a racial or ethnic minority group, and were more geographically dispersed than in-person counseling clients. Telephone counseling clients also achieved stronger housing outcomes (i.e., they were more likely to receive mortgage modifications and balance reductions as well as remain in their home and current with their payments at followup) than did in-person counseling clients. Although this finding does not constitute proof that telephone counseling is as effective as in-person counseling (because the substantially different characteristics of each type of client likely affected these outcomes), it does suggest that the expansion of telephone counseling during the foreclosure crisis provided an important alternative resource for individuals and communities, particularly those without access to in-person counseling.

The study enrolled 824 homeowners seeking foreclosure mitigation services in the fall of 2009 from a broad sample of 24 HUD-funded counseling agencies from 15 states. These homeowners had a lower annual income than the average U.S. homeowner and were more likely to be members of racial and ethnic minority groups. About three-quarters of the homeowners had fallen behind on their payments because of a loss of income, and very few had any available savings to cover missed mortgage payments.

The study finds the majority of counseled homeowners (69%) were able to obtain a mortgage remedy and retain their home, and more than half of counseled homeowners (56%) were able to become current on their mortgages within the 18-month followup period. These outcomes were much more common among homeowners who sought counseling either before becoming delinquent or in the early stages of delinquency (within 1 to 3 months).

This study is one of the few documenting housing outcomes in relation to the specific counseling services received. The findings suggest that counseling helped motivated but vulnerable homeowners understand their options and navigate the loss mitigation process. Because early contact with an agency may be the most important factor in determining the options available to a distressed homeowner, dedicating resources to ensuring wide availability of counseling services and increasing outreach efforts is likely to be a valuable investment.

Learn more about the “Pre-Purchase Counseling Outcome Study” in the next issue of The Edge.