Tuesday, October 25, 2016

Can Homebuyer Counseling Support Sustainable Homeownership?

by Jonathan Spader
Senior Research Associate
HUD recently released a progress report —including a few early findings—from what could be a ground-breaking study of homebuyer education and counseling (HEC). While it will be several more months before the full study sample is ready for analysis, the early findings offer several insights about the value of HEC in helping potential homebuyers prepare for and sustain homeownership. Equally important, they confirm that implementation of the study is on track, successfully completing a field experiment that has the potential to produce detailed evidence about the impacts of homebuyer education and counseling. (Full disclosure: I’m currently an advisor to the study and previously served as its project director.)

The HUD study offers the first large-scale randomized-control trial of homebuyer education and counseling (although existing non-experimental studies  have shown promising estimates of HEC’s impacts). When enrollment closed earlier this year, more than 5,800 study participants were enrolled in 28 cities across the United States, with enrollments primarily occurring between January 2014 and January 2016. These participants were randomly assigned to one of three study groups: 1) in-person HEC offered through local housing counseling agencies; 2) remote HEC offered via internet and telephone, and 3) a no-services control group. For more details about this study design, see the full report

Looking forward, the critical tests will examine how HEC influences recipient outcomes, and whether such impacts translate into improved decisions during the home purchase process and, ultimately, into sustained homeownership. To better understand these impacts, the study’s future analyses will examine multiple measures across three domains: financial knowledge and management; home and mortgage search; and, homeownership sustainability.

For now, the early results offer a few data points that focus on the initial steps toward these outcomes, comparing outcomes 12 months after enrollment for a pooled treatment group (which combines the in-person and remote groups) versus the control group. These early analyses find several statistically-significant impacts of HEC:
  • Treatment group members performed significantly better than control group members on a four-question measure of mortgage literacy.
  • Treatment group members are significantly more likely to indicate that they would proactively contact their lender before missing a payment, a period when the lender has the most options for finding a solution that avoids default or foreclosure.
  • Treatment group members are significantly more likely to have credit scores above 620, suggesting that HEC helped participants to correct errors or otherwise improve their credit scores in advance of home purchase.
Not all of the outcomes showed statistically-significant impacts. Treatment group members were not significantly different than control group members with respect to the fourth outcome tested—whether they regularly tracked their spending against a budget. A further caveat to these findings comes from the preliminary nature of the tests, which are based on a subset of the full study sample and examine only a handful of outcomes. Nonetheless, these estimates offer initial evidence that homebuyer education and counseling can play a valuable role in helping people prepare for homeownership. To that end, the early results report includes a couple of statements from study participants that are worth quoting directly:

“Just talking to the [housing counselor], it made me realize… what I could afford and, well, what I was preapproved for… She was adding on other expenses that I had totally forgot to add, you know, ‘cause I thought I had it all together. And I hadn’t. So I ran into a few things talking to her that made me realize that I probably need to just, you know, wait.”
 –Study participant in Chicago, IL

“[HEC] gave us the idea of whether we should go for it right now or not. It is really telling us what the timing [sic] if we are not really prepared and if we don’t have enough credit or other issues …you know, maybe it is not the right time for us. So it is really helping us to make the decision of go or no go.”
–Study participant in Dallas, TX

The full analyses of study participant outcomes at 12 months from study enrollment are is due in 2018, with analyses of longer-term impacts at 42 months from enrollment due in 2020. If the initial results are any guide, these future reports are likely to offer important conclusions about the value of HEC in supporting sustainable homeownership. 

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