The Role of Housing Counseling in Reducing Mortgage Delinquency and Foreclosure
By Laura Williams1
The following is a brief summary of the research evidence2 on the role of housing counseling in reducing mortgage delinquency and foreclosure.
1. There is strong evidence that housing counseling can be an effective intervention in helping distressed homeowners avoid foreclosure. Specifically:
A nationwide study of the foreclosure mitigation counseling program found that borrowers who had missed a payment on their mortgage were 45 to 50 percent more likely to get up-to-date on payments if they received counseling.3
Homeowners in default who received counseling were twice as likely to avoid foreclosure as those who did not in a study of the Mortgage Foreclosure Prevention Program in Minneapolis.4
2. Early intervention is important. One study found that borrowers who received counseling in the early stages of default were far more likely to receive a loan modification and/or keep their homes than those who received counseling when they were seriously delinquent.5
3. Families who participated in the national foreclosure mitigation counseling program were also able to negotiate lower monthly costs. An evaluation found that the monthly payments of households that received counseling were, on average, $267 lessthan those who did not participate in counseling. Counseling also made it 45 percent more likely that the homeowner would sustain those payments after modification.6
4. There is also evidence that counseling provided before a household purchases a home can reduce the likelihood of mortgage delinquency. Most studies have found that pre-purchase counseling leads to positive results, reducing delinquency anywhere from 19 to 50 percent, although one study reported no impact.7 Research in 2001 found that face-to-face counseling was most effective, resulting in a 34 percent reduction in delinquency for participating homeowners.8
5. Pre-purchase counseling can help reduce the likelihood of default and foreclosure by helping individuals determine if they are ready for homeownership, and by connecting them with safer and more affordable mortgage products. One study has estimated that 30 to 50 percent of subprime borrowers prior to the housing crisis could have qualified for prime loans.9 Well-underwritten, prime loans to low- and moderate- income borrowers have much lower default rates than subprime loans made to comparable borrowers.10 Pre-purchase housing counseling from a HUD-certified housing counselor can improve homeowners’ access to appropriate mortgage products.