Housing Counseling Works

Marina L. Myhre, Ph.D.

Nicole Elsasser Watson

Social Science Analysts

U.S. Department of Housing and Urban Development

September 2017

U.S. Department of Housing and Urban Development | Office of Policy Development and Research
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Housing Counseling Works 

This paper briefly summarizes recent research evidence on the 

role of housing counseling to improve housing outcomes for 

homebuyers, homeowners, and renters. 

Post-Purchase Foreclosure 

Mitigation Counseling

Evidence indicates that housing counseling can be an effective 

intervention in helping distressed homeowners avoid foreclosure. A report by Temkin et al. (2014) sponsored by the Urban 

Institute reviewed outcomes associated with 240,000 loans, 

one-half of which received counseling under NeighborWorks®

America’s National Foreclosure Mitigation Counseling (NFMC) 

program. Counseled clients were 2.83 times more likely to receive 

a loan modification and were 70 percent less likely to redefault 

on a modified loan than were similar borrowers who were not 

counseled. Counseled clients were given modifications that 

saved them $732 per year compared with modifications given 

to noncounseled borrowers. Earlier results indicated that the 

monthly payments of households that received modifications 

after counseling were, on average, $267 less than the payments 

of those who received modifications but did not participate 

in counseling; borrowers in foreclosure were 70 percent more 

likely to get up to date on payments if they received counseling; 

and homeowners who received a mortgage modification to 

resolve a serious delinquency were 45 percent more likely to 

sustain that modification if it was obtained with the help of 

housing counseling (Mayer et al., 2009). 

Other studies also suggest counseling is associated with 

the likelihood of obtaining a mortgage remedy. Been et al. 

(2013) and Chan et al. (2014) found that foreclosure prevention counseling coordinated by the nonprofit Center for New 

York City Neighborhoods significantly increased a borrower’s 

likelihood of receiving a loan modification or coming to some 

workout other than foreclosure. Collins and Schmeiser (2013) 

found that housing counseling predicted a higher likelihood of 

both receiving a modification and avoiding foreclosure. Counseled borrowers who received modifications were better able 

to avoid repeated default than were comparable uncounseled 

borrowers. Comparing subprime mortgagors who contacted a 

national nonprofit counseling hotline with those who did not, 

Collins, Schmeiser, and Urban (2013) found that counseled 

borrowers were about 6 percent more likely to receive a loan 

modification. The Jefferson et al. (2012) U.S. Department of 

Housing and Urban Development (HUD) study of homeowners 

who sought foreclosure counseling found that counseling helped 

homeowners obtain a mortgage remedy and become current on 

their mortgages, that early intervention matters, and that telephone counseling provided an important alternative resource 

for individuals and communities—particularly those living in 

areas without an in-person counseling provider. Collins and 

O’Rourke (2011) reviewed eight earlier studies on the effectiveness of foreclosure intervention counseling—most showed fewer 

completed foreclosures and an increased likelihood of loan 

modifications at better terms among counseled borrowers. 

Early intervention seems to matter. Both the Jefferson et al. 

(2012) and Collins and Schmeiser (2010) studies 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 or in foreclosure. 

Time spent with homeowners may improve outcomes. Lee 

(2015) found that longer hours of counseling significantly 

reduced the probability of withdrawing from the loan modification process. Likewise, a study by Quercia and Cowan (2008) 

of the Mortgage Foreclosure Prevention Program in Minnesota 

found that 1 extra hour improved the client’s odds of avoiding 

foreclosure by 10 percent and that 8 additional hours doubled 

the odds of avoiding foreclosure. 

Proximity to housing counseling centers may lower the 

transaction costs of assistance takeup. Lee (2015) found that 

longer distances to counseling services were associated with 

higher rates of withdrawal from counseling. Russell, Moulton, 

and Greenbaum (2014) found that Ohio registrants for mortgage 

assistance who lived within 5 miles of a HUD-certified counseling agency completed applications for assistance 32 percent of 

the time. That rate fell to 18 percent for registrants who lived 

more than 50 miles away from counseling centers.

Collins and Schmeiser (2013) suggest that the effects of counseling 

duration may be related to the likelihood of counseling takeup. 

They found that proximity to mortgage default outreach events 

funded by the NFMC program reduced the likelihood of foreclosure, independent of counseling duration. Social networks 

and neighborhood characteristics may also influence mortgage 

delinquency counseling takeup. An ethnographic analysis of a 
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HUD-certified housing counseling agency found that workingclass homeowners were more likely to learn about housing 

counseling services through their informal horizontal networks 

than were middle-class homeowners. Working-class homeowners were also more likely to share relevant information about 

the loan modification process with their social networks than 

were middle-class homeowners, who were embarrassed to be 

struggling with their mortgage (Owens, 2015). Lee (2015) 

similarly found that the likelihood of a distressed homeowner 

seeking counseling services, controlling for distance to the 

closest provider, declined significantly in neighborhoods with 

higher median house prices or lower housing burdens. Those 

in high-poverty neighborhoods were also less likely to seek 

counseling services. 

Pre-Purchase and PostPurchase (Nondefault) 

Housing Counseling 

Pre-purchase counseling may help individuals determine if 

they are ready for homeownership and connect them with 

safer, more affordable mortgage products. Moulton et al. 

(2013) analyzed perception bias and mortgage consumption 

among low- to moderate-income first-time homebuyers and 

found that nearly one-third underestimated their total household debt by $5,000 or more, which was positively associated 

with higher mortgage consumption. Reid (2006) estimated that 

30 to 50 percent of subprime borrowers could have qualified 

for a prime loan before the housing crisis. Prime loans, when 

well underwritten to low- and moderate-income borrowers, 

have much lower default rates than subprime loans made 

to comparable borrowers, according to Ding, Quercia, and 

Ratcliffe (2008). 

Mandatory pre-purchase mortgage counseling may deter 

some borrowers from choosing high-risk loans. Agarwal et 

al. (2014) analyzed the effects of a legislative pilot in Chicago 

that mandated HUD-certified counseling for mortgage applicants 

with low FICOTM scores and applicants applying for risky 

mortgages. Low-FICOTM applicants did not materially change 

their contract choice. Applicants for high-risk mortgages, 

however, avoided counseling by choosing less-risky mortgages. 

Both pre-purchase education and housing counseling 

appear to be associated with factors related to sustainable 

homeownership. In June 2016, HUD published The First-Time 

Homebuyer Education and Counseling Demonstration: Early Insights 

report that presented 12-month findings for study participants 

who enrolled in the Demonstration before December 1, 2014, 

that is the “early enrollee” sample (DeMarco et al., 2016). Three 

of four 12-month outcomes tested positive and statistically 

significant (improved mortgage literacy, greater appreciation 

for communication with lenders, and improved underwriting 

qualifications). Though the magnitude of the impact estimates 

was small, the positive and significant findings for three of the 

four outcomes are a good preliminary indication of favorable 

outcomes for the full sample and confirmation of the strength 

of the randomized experiment and its potential for providing 

evidence of estimated impact of being offered homebuyer education and counseling on homebuyer preparedness, financial 

literacy and management, and homeownership sustainability. 

In 2017, HUD published The First-Time Homebuyer Education 

and Counseling Demonstration: Baseline Report, which describes 

the study design, implementation, characteristics of the full 

study sample, and the treatment groups’ experiences with the 

intervention including an analysis of take-up rates and focus 

group discussions (DeMarco et al., 2017). Initiation rates were 

good for remote services (63.3 percent) and low for in-person 

services (25.9 percent), with some differences in completion 

rates for education versus counseling services (higher completion rates for education in the in-person group and higher 

completion rates for counseling in the remote group). Even 

when people express a preference for in-person services, they 

initiate those services at lower rate (31.5 percent) than do 

people who prefer and subsequently take up remote services 

(64.3 percent). This report explores reasons for these service 

preferences and behaviors and highlights future analyses that 

will consider the respective impacts of service delivery mode.

In a natural field experiment of a Tennessee pre-purchase 

homebuyer education program funded by a HUD housing 

counseling grant, Brown (2016) found that borrowers who 

received education meeting HUD standards had 42 percent 

lower odds of foreclosure compared with the control group, 

even though differences in default rates between the two 

groups were not statistically significant.

Eschbach et al. (2016) conducted an evaluation of a statewide 

homeownership education program in Michigan for a sample 

of 1,561 low- to moderate-income residents. The evaluation 

showed increases ranging from 26 to 53 percent in self-reported knowledge of the “financial requirements for buying a home 

and practices to prevent predatory lending and foreclosure.”

Li et al. (2016) conducted an extension of the Mayer and 

Temkin (2013) study of NeighborWorks pre-purchase counseling clients. Using a sample of 6,224 loans from 2010 through 
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2012 for NeighborWorks counseled borrowers, compared 

with a comparison group of 6,224 loans from Home Mortgage 

Disclosure Act and CoreLogic, Inc. databases matched using 

a two-stage weighting technique. Li et al. (2016) found the 

NeighborWorks-counseled borrowers had a 16 percent lower 

90-day delinquency rate that the comparison group. It is notable 

that the apparent impact of NeighborWorks pre-purchase 

counseling is smaller than the one-third decrease that Mayer 

and Temkin (2013) documented, but the authors attribute much 

of that to the tightening of the credit box since the financial 

crisis. Li et al. (2016) highlight selection bias and the lack 

of information on whether any comparison group members 

received any homeownership counseling through another 

provider as limitations to their findings.

A randomized field experiment sponsored by the Federal Reserve 

Bank of Philadelphia found that pre-purchase homeownership 

counseling had positive long-term effects on credit score, debt 

levels, and delinquencies on debt. No impact on timeliness 

of mortgage payments was observed (Smith, Hochberg, and 

Greene, 2014). 

A study of the 2-year loan performance of more than 18,000 

pre-purchase counseling clients from the NeighborWorks®

America’s network of counseling agencies found that those clients 

who received counseling were one-third less likely to become 

90 or more days delinquent in the 2 years since obtaining their 

loan than a matched comparison group of similar borrowers who 

did not receive pre-purchase counseling (Mayer and Temkin, 

2013). The study findings held true for borrowers regardless 

of loan origination year (October 2007 through 2009) and for 

both first-time homebuyers and repeat homebuyer borrowers. 

A Turnham and Jefferson (2012) HUD study, which analyzed 

the outcomes of pre-purchase counseling clients 18 months 

after completing counseling, found that 35 percent of the 

participants became homeowners, with only one person falling 

30 or more days behind his or her mortgage payments. 

A review of 10 earlier studies by Collins and O’Rourke (2011) 

found that pre-purchase counseling can reduce the likelihood 

of mortgage delinquency. Most studies found that pre-purchase 

counseling led to positive results, reducing delinquency anywhere 

from 19 to 50 percent, although some studies reported no effect. 

The studies examined, however, suffer from methodological 

constraints because none of the studies were randomized 

experiments; therefore, the effect of the counseling could not 

be differentiated from characteristics of the individuals who 

participated in the counseling services. 

Early research by Carswell (2009) looked at self-reported 

changes in behavior from before and after counseling for 1,720 

first-time homebuyers 5 years after participating in the City of 

Philadelphia’s Down Payment Assistance program. Although 

the survey was conducted 5 years after the counseling, had 

a low response rate (24 percent), and found mixed results in 

terms of improved self-reported financial performance after becoming homeowners, this study was important in its attempts 

to reach first-time homebuyers after a substantial amount of 

time had passed and to measure financial performance after 

home purchase. 

Various pre-purchase counseling delivery methods have 

been studied. A widely cited study by Hirad and Zorn (2002) 

found that face-to-face counseling methods were most effective 

in reducing delinquency among participating homeowners. 

Face-to-face individual and classroom education mitigated 

delinquency risk by 34 and 26 percent, respectively, and home 

self-study mitigated risk by 21 percent. After accounting for 

nonrandom assignment and self-selection into counseling 

types, however, the authors found that face-to-face classroom 

education may be more effective than individual counseling. 

A more recent study of affordable lending outreach programs 

by Avila, Nguyen, and Zorn (2013) found comparable rates of 

delinquency risk reduction for first-time homebuyers across 

a variety of counseling and education delivery methods, with 

classroom, telephone/Internet, and home study each reducing 

risk by approximately 30 percent. Too few loans received 

individual counseling for conclusions to be made about its 

effectiveness in this study.

Pre- and post-purchase counseling may be combined. In 

a case study documenting the effectiveness of affordable loan 

programs that require homeownership education and counseling, the UNC Center for Community Capital (2012) analyzed 

mortgage delinquency rates for more than 15,000 families who 

purchased a home through the Massachusetts’ SoftSecond®

Loan Program from 1990 through 2010. They found that those 

loans performed better than subprime loans and even prime 

loans in Massachusetts. The reasons for the program’s success 

seem to be strong underwriting supported by pre-purchase 

and post-purchase counseling for homeowners. Agarwal et al. 

(2010) analyzed the effect of voluntary counseling on low- and 

moderate-income households and found that improved loan 

performance is attributable to the type of mortgage contract, 

budgeting and credit management skills taught by housing 

counselors, and active post-purchase counseling to address 

early stage delinquencies. 
Housing Counseling Works 

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Early post-purchase interventions at the time of purchasing or refinancing a home, with or without pre-purchase 

counseling, also appear to be related to improved outcomes.

Post-purchase counseling helps refinance applicants avoid 

higher cost loans. Collins (2014) analyzed variation in state 

laws regarding risk disclosure and found that refinance applications requiring housing counseling made applicants more 

likely to reject approved high-cost loan offers. A randomized 

field experiment (Collins et al., 2013) that tested free quarterly 

“telephone financial coaching” for 1 year after home purchase 

found an 11.1-percent reduction in mortgage default rates for 

first-time homebuyers with subprime credit histories (credit 

scores below 680). 

Credit counseling is associated with some positive consumer outcomes. In a recent review of the National Foundation for Credit Counseling’s national demonstration program, 

Sharpen Your Financial Focus, Roll and Moulton (2016) found 

that credit counseling clients have $11,300 less total debt and 

$3,600 less revolving debt relative to a matched comparison 

group. Although “clients with weaker credit profiles also demonstrate[d] improvements in payment delinquency metrics,” the 

statistical matching used to create the comparison group overall 

could not control for selection bias, in that clients who received 

counseling seemed to be more likely to be have experienced 

a financial shock that led to their receiving credit counseling 

services.

Upcoming Research 

Additional research is under way to improve the understanding of the impact of homeownership counseling. Researchers 

have employed a variety of methods to examine the effects of 

homeownership counseling but, to date, have not conducted 

a large-scale experimental trial. Research comparing outcomes 

for households randomly selected to receive homebuyer 

counseling against control groups of households that receive 

information without counseling would make a significant 

contribution to the field. 

In 2014, HUD implemented a randomized controlled experiment to measure the impact of homebuyer education and 

counseling on a random sample of more than 5,800 low- to 

moderate-income and middle-income prospective first-time 

homebuyers for a minimum of 36 months after random 

assignment. HUD worked with three large national lenders to 

refer potential customers who applied for pre-qualification, 

pre-approval, or a loan and randomly assign them to three 

treatment groups that were offered remote (online education 

and telephone-based counseling), in-person (group workshops 

and individual counseling), or a choice of remote or in-person 

homebuyer education and counseling services, and a control 

group that was not offered any services. Findings from the 

Early Insights and Baseline reports are detailed in the previous 

Pre-Purchase and Post-Purchase (Nondefault) Housing Counseling section. The research team completed the 12-month followup survey , and interim results for the full study sample are 

expected in early 2018. Final results are expected in mid-2020. 

Financial Literacy and 

Coaching

Financial education seems to be related to both financial 

literacy and financial behavior.1 Collins and O’Rourke 

(2010) reviewed 15 earlier studies of general financial education programs—most found both knowledge and behavioral 

improvements. These effects extend to even very low-income 

individuals. In a randomized field experiment, Reich and 

Berman (2015) found that a financial literacy course offered to 

homeless individuals within a nonprofit transitional housing 

program improved both financial knowledge and positive 

financial behaviors. 

Financial literacy may be a factor in the takeup of financial 

advice. A telephone survey conducted in conjunction with 

the National Financial Capability Study commissioned by the 

FINRA Investor Education Foundation in 2009 revealed that 

financial literacy was positively correlated with the likelihood 

of seeking financial advice from a professional (Collins, 2012). 

Disney, Gathergood, and Webber (2014) expanded on this 

line of research by accounting for the links between financial 

literacy, an individual’s financial situation, and exposure to 

credit counseling. They found that more financially literate 

individuals are 60 percent less likely to use credit counseling. 

This finding suggests that credit counseling may provide a 

safety net for those who are less financially literate.

Financial literacy may be related to responsible financial 

behavior. In a randomized field study of very low-income 

housing voucher holders in New York, Collins (2010) found 

that a financial fitness course given by a HUD-approved housing counseling agency improved self-reported credit and money 

management knowledge. In addition, savings account balances 

1

 Many housing counseling agencies offer financial literacy, coaching, and credit counseling programs, but unless specified the studies cited were not limited to agencies participating in HUD’s housing counseling program. 
Housing Counseling Works 

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increased by $362 and the number of credit scores below 680 

among participants decreased modestly. Financial education 

also led to expanded use of credit and lower net worth. For very 

low-income households, knowing how to access and manage 

loans may make useful spending, such as automobile financing 

that expands job or schooling opportunities, possible. Taking 

on more debt did not lead to more delinquencies, higher use of 

credit limits, or lower credit scores (Collins, 2013). 

Under certain circumstances, financial sophistication 

may be a factor in whether low-income households use 

funds for social mobility purposes such as moving, making 

home improvements, or saving to buy a house. A randomized 

field experiment in New York by Barnes et al. (2011) found 

that financial literacy and having a savings goal significantly 

increased the likelihood that cash infusions were used for social 

mobility purposes. Conversely, households that used alternative banking services were about 25 percent less likely to direct 

cash infusions toward social mobility. 

Financial coaching that provides a framework for meeting 

financial goals seems to be associated with behavioral 

outcomes related to social mobility, debt paydown, and 

financial planning. A recent randomized field experiment that 

analyzed financial coaching program outcomes (Theodos et 

al., 2015) found positive and significant effects on participant 

savings, debt paydown, planning and budgeting, reduced 

financial stress, and progress toward financial goals. Collins 

and O’Rourke (2012) similarly reviewed three nonrandomized 

financial coaching field studies targeting lower-income clients 

and found coaching was associated with goal setting and with 

positive financial outcomes, such as budgeting, paying bills on 

time, and savings behavior. 

Goal setting combined with external monitoring by a financial coach may help first-time homebuyers avoid default.

A randomized field study by Moulton et al. (2015) found that 

lower income first-time homebuyers who completed a financial 

planning module and were contacted quarterly by a financial 

coach during the first year of their mortgage were less likely to 

default. Lusardi, Michaud, and Mitchell (2015) also found that 

financial education with followup had more sizable long-term 

effects on savings than did one-time education programs, 

especially when the education was offered to individuals during 

mid-life peak savings years. This finding suggests that followup 

to financial literacy programs can help individuals sustain 

acquired knowledge. 

Mobility Counseling 

Housing mobility programs have the potential to encourage 

moves to opportunity neighborhoods, but few such programs 

exist and the body of research on their efficacy is limited 

(Cunningham et al., 2010). Some evidence, however, suggests 

that counseling helps low-income families lease up and stay in 

opportunity neighborhoods.2

The intensity of counseling is one mechanism through which 

locational goals may be more readily achieved. Shroder (2002) 

analyzed data from HUD’s Moving to Opportunity for Fair 

Housing demonstration program and found that constraining 

vouchers to low-poverty neighborhoods reduced leaseup by at 

least 14 percentage points. Increasing the intensity of counseling services to include housing, social, and followup services 

predicted nearly closing this gap. 

Further evidence suggests that some mobility counselors 

have leveraged new ways of increasing counseling intensity 

since the desegregation and poverty deconcentration efforts of 

the Gautreaux program and the Moving to Opportunity (MTO) 

experiment. The Baltimore Mobility Program (BMP), for example, 

pairs intensive mobility counseling and education with the 

requirement that assisted families use vouchers to move to 

low-poverty, racially mixed census tracts for 1 year. Vouchereligible households participate in large-group informational 

briefings and workshops and also in one-on-one counseling. 

Beyond providing information about community amenities and 

schools, counselors provide tours of suburban neighborhoods 

and 24 months of postleaseup home visits to help families 

remain in high-opportunity neighborhoods. “Second-move 

counseling” assists families who are considering a move out of 

their original BMP units (Darrah and DeLuca, 2014). 

Counselors may help some movers reframe residential 

choices. Darrah and DeLuca (2014) conducted a nonrandomized qualitative field study of the residential choice frameworks 

of those who had moved through BMP compared with eligible 

families who had not yet moved. They found that education and 

counseling broadened the choice set of movers by helping participants imagine thriving in unfamiliar places and highlighting 

the benefits of opportunity-rich neighborhoods. Connecting 

movers to local resources like grocery stores and schools helped 

movers feel less vulnerable. After participating in the program, 

families exhibited higher neighborhood and school expectations 

and were less likely to discount neighborhood safety problems. 

2

 HUD housing counseling agencies may provide mobility counseling as part of their services, but unless specified the studies cited did not rely on agencies participating in HUD’s housing counseling program.
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Research on vouchered families suggests that mobility 

counseling targeting good schools may be especially salient 

for families with children about to be of school age. Ellen 

and Schwartz (2015) analyzed a combination of experimental 

and large-scale administrative data sets and found that households 

in which the oldest child met the eligibility cutoff for kindergarten 

were more likely to use vouchers to move to neighborhoods 

with higher-performing schools than were other voucher holders. 

Housing assistance programs that combine intensive mobility 

education and counseling with desegregation and poverty 

deconcentration requirements may achieve related educational 

benefits. DeLuca and Rosenblatt (2009) analyzed moving 

patterns among BMP participants and found that the average 

family moved from a neighborhood that was 81 percent Black 

to one that was 21 percent Black. Likewise, the average family 

went from living in a neighborhood that was 34 percent poor 

to one that was 8 percent poor. BMP movers also reached 

neighborhoods with higher quality schools, as measured by 

student academic performance and teacher qualifications 

(DeLuca and Rosenblatt, 2011; McKoy and Vincent, 2011). 

Desegregation and poverty deconcentration efforts combined 

with mobility education and counseling may enjoy enduring effects with ongoing support. About 80 percent of BMP 

families remained in their new neighborhoods 1 to 4 years after 

moving. Families who made second moves went to neighborhoods that had a somewhat higher minority population and 

were poorer on average but that were still less segregated 

and less poor than their original communities (DeLuca and 

Rosenblatt, 2009). 

Second-move counseling has the potential to further leverage 

these results. Later followup with BMP participants revealed 

that more than 74 percent of families who had moved from 

their initial BMP unit were still living in low-poverty neighborhoods 1 to 8 years later (Darrah and DeLuca, 2014). 

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