Homeownership counseling refers to prepurchase and postpurchase counseling of homeowners and is a subset of housing counseling, which can also include assistance to renters and homeless populations. Prepurchase counseling generally refers to counseling for potential homebuyers to learn about whether and when to buy a home and how to manage a mortgage, budget for repairs, and fulfill other financial responsibilities of being a homeowner. Postpurchase counseling primarily refers to foreclosure mitigation counseling, which focuses on helping financially distressed homeowners avoid foreclosure by working with lenders to cure mortgage delinquency but can also include subjects such as home maintenance. Counseling can take place in person, over the telephone, via a self-study computer module, or with a workbook, and can vary in length from a single session to several sessions spread over a period of weeks or months. The federal government funds homeownership counseling through a number of programs at HUD, Treasury, the Department of Defense, and the Department of Veterans Affairs. Congress has also provided targeted support for foreclosure mitigation counseling. For example, in recent years, Congress has appropriated funds to the National Foreclosure Mitigation Counseling (NFMC) Program, which was designed to rapidly expand the availability of foreclosure mitigation counseling. NFMC is administered by NeighborWorks® America, a government-chartered, nonprofit corporation with a national network of affiliated organizations, which competitively distributes NFMC funds to other recipients. The limited body of literature on homeownership counseling does not provide conclusive findings on the impact of all types of homeownership counseling. Some studies suggest that foreclosure mitigation counseling can be effective in improving mortgage outcomes (e.g., remaining current on mortgage payments versus defaulting or losing the home to foreclosure). However, findings on prepurchase counseling are less clear. Research on homeownership counseling is limited in part because of data limitations and other challenges. Recent research on foreclosure mitigation counseling suggests that it can help struggling mortgage borrowers avoid foreclosure and prevent them from lapsing back into default, especially if the counseling occurs early in the foreclosure process. A 2010 evaluation of NFMC found that homeowners who received counseling under the program were more likely to receive loan modifications and remain current on their mortgages after counseling, compared with a group of non-NFMC borrowers with similar observable characteristics. Specifically, the authors estimated that borrowers who received NFMC counseling were 1.7 times more likely to “cure” their foreclosure (i.e., be removed from the foreclosure process by their mortgage servicer) than borrowers who did not receive NFMC counseling. The authors also estimated that loan modifications received by NFMC clients in the first 2 years of the program resulted in monthly mortgage payments that averaged $267 less than they would have paid without the program’s help. Additionally, the study found that in 2008, borrowers who received NFMC counseling before a loan modification had an estimated 53 percent better chance of bringing their mortgages current than borrowers who did not receive premodification counseling. Other studies of foreclosure prevention counseling have also found that the timing of the counseling was critical and that the earlier in the foreclosure process borrowers received counseling, the more likely they were to have a positive outcome. The findings on the impact of prepurchase counseling are less clear. For example, a 2001 study analyzed data on the performance of about 40,000 mortgages made under a Freddie Mac program for low- to moderate-income homebuyers, a large majority of whom received prepurchase counseling. The authors compared the loan performance of program participants who received different types of prepurchase counseling to the loan performance of participants who did not. The study found that borrowers who underwent individual and classroom counseling were 34 and 26 percent less likely, respectively, to become 90 days delinquent on their mortgages than similar borrowers who did not undergo counseling. However, subsequent studies have found either no effect on loan performance or effects that were potentially attributable to other factors. For example, a 2008 study of about 2,700 mortgage borrowers found that prepurchase counseling had no effect on a borrower’s propensity to default. A 2009 study examined a legislated pilot program in 10 Illinois ZIP codes that mandated prepurchase counseling for mortgage applicants whose credit scores were relatively low or who chose higher-risk mortgage products such as interest-only loans. Although the authors found that mortgage default rates for the counseled low-credit score borrowers were lower than those for a comparison group, the authors attributed this result primarily to lenders tightening their screening of borrowers in response to stricter regulatory oversight. Additional empirical research on the impact of housing counseling is under way at HUD and Fannie Mae. HUD’s Office of Policy Development and Research issued a broad overview of the housing counseling industry in 2008 and is currently conducting two studies on mortgage outcomes related to foreclosure mitigation and prepurchase counseling programs. The foreclosure mitigation study will follow 880 individuals and evaluate mortgage outcomes 12 months after counseling ends. HUD officials said that they expected the study to be published in 2012. The prepurchase counseling study will track 1,500 to 2,000 individuals who receive different types of counseling (one-on-one, group, Internet, or telephone) or no counseling. HUD officials said that they expected data collection for this study to begin in 2012. In addition, Fannie Mae is conducting both prepurchase and postpurchase counseling studies. According to Fannie Mae officials, the prepurchase study will track over a 2-year period the loan performance of borrowers who received counseling prior to purchasing a home. The postpurchase study will evaluate the impact of telephone counseling on existing homeowners who receive loan modifications through HAMP. Conducting research on homeownership counseling outcomes is challenging for a variety of reasons, and limitations in the methodologies used in existing studies make it difficult to generalize the results or compare outcomes across various studies. According to housing counseling researchers we spoke with, the primary barrier in the study of housing counseling is a lack of data. Long-term data on counseling outcomes are limited because of the difficulty of tracking counseling recipients after the counseling ends. In addition, many counseling agencies are hesitant to request sensitive personal information from clients. One researcher we spoke with told us that the ability to track loan performance over time is critical to an effective assessment of housing counseling programs. For this reason, some counseling researchers have begun working with lenders and mortgage servicers to access information on the payment status (e.g., current or delinquent) of counseling recipients and the long-term outcomes of their mortgages. Another limitation of the current research is the lack of experimental research design, which is considered the best approach for evaluating differences in an intervention such as counseling and comparing it to no intervention. We did not identify any published studies that evaluated homeownership counseling using an experimental design. For this and other reasons, researchers have been hesitant to draw firm conclusions from the published literature. For example, differences among counseling programs—in terms of curriculum, intervention method (e.g., one-on-one, telephone, or classroom), level of intervention (e.g., intensity or amount of time spent counseling), and outcome measures—make it difficult to draw broader conclusions about the impact of housing counseling. Establishing meaningful measures of the impact of homeownership counseling programs is also a significant challenge. Our recent evaluation of Treasury’s Financial Education and Counseling Pilot Program illustrates this point. As a condition of receiving grant funds under the program, grantees are required to report on the results of five performance goals within 6 months of disbursement and annually thereafter. We found that some grantees were calculating the results of their impact measures in erroneous or misleading ways or were not fully capturing meaningful information, potentially limiting the usefulness of these data for assessing program effectiveness. For example, one grantee inaccurately calculated the average percentage increase in prospective homebuyer savings. According to the grantee’s calculation, a participant who began a financial education and counseling program with no savings but subsequently saved $500 was shown to have a 50,000 percent increase in savings. In fact, a percentage increase cannot be meaningfully calculated from zero savings because any percentage increase on zero is infinite. We also identified alternatives to the methods of calculating impact measures that the grantees were using. For example, we noted that instead of just measuring changes in clients’ savings, it might be advantageous to focus on net savings—that is, savings minus debt—to provide a more complete picture of an individual’s financial situation. Treasury officials told us that they had discussed the specific impact measures with each grantee in the pilot program but had not provided guidance on how to calculate the results. We recommended that Treasury provide additional guidance or technical assistance to the grantees on how to accurately and meaningfully calculate the results of the impact measures. Treasury stated that it concurred with the observations in our report and plans to provide grantees with supplemental guidance on impact measures before the next reporting deadline. In prior work, we found shortcomings in HUD’s and Treasury’s implementation of homeownership counseling requirements for the HECM and HAMP programs. In 2009, we evaluated HUD’s implementation of the counseling requirements associated with the HECM program and found that HUD’s internal controls did not provide reasonable assurance that counseling providers were complying with the program requirements. GAO’s undercover participation in 15 HECM counseling sessions found that while the counselors generally conveyed accurate and useful information, none of the counselors covered all of the topics required by HUD, and some overstated the length of the sessions in HUD records. For example, 7 of the 15 counselors did not discuss required information about alternatives to HECMs, and 6 of the 15 counselors overstated the length of the session. HUD had several internal controls designed to help ensure that counselors conveyed required information to prospective HECM borrowers but had not tested the effectiveness of these controls and lacked procedures to help ensure that records of counseling sessions were accurate.