Women and adults under 30 did see improvements to their credit scores in pioneering a randomized study of 5,854 prospective first-time homebuyers.

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A study that offered free homebuyer education and counseling to thousands of first-time homebuyers found that it didn’t reduce the risk of getting behind on their mortgage payments in the years to come, but it did improve credit scores for women and younger homebuyers.

Those are among the key findings from the first-ever randomized study of the benefits of housing education and counseling, which analyzed outcomes for more than 5,800 prospective homebuyers in more than two dozen markets, 4 to 6 years down the road.

The study, sponsored by the U.S. Department of Housing and Urban Development (HUD) and conducted by Abt Associates, found that offering homebuyer education and counseling had “no detectable impact on 60-day delinquency or any other measure of loan performance.”

That includes African-American and Hispanic first-time homebuyers, who “did not specifically benefit from the homebuyer education and counseling services provided,” the study found.

But women and younger adults (under 30 when they entered the study) both saw improvements in their credit scores compared to members of a control group, averaging 6 points for women and 7 points for younger adults.

Laura Peck

“While the results of this study indicate there’s no single, monolithic solution to educating homebuyers, the improvements for women and younger people imply greater customization for certain population segments might work well,” said Abt’s Laura Peck, one of the study’s authors, in a statement. “However, programs that advance equity in homeownership may need to be more intensive, for example, by considering structural and systemic barriers.”

Study caveats

In a foreword to the study, HUD official Todd Richardson was careful to point out that the research was “not a study of HUD’s current housing counseling programs,” which are primarily provided to borrowers who participate in downpayment assistance programs.

Instead, the study looked at a “broader universe of prospective first-time homebuyers,” and purposely excluded anyone participating in a downpayment assistance program, Richardson noted. All in all, the study sample “was more male, more educated, and had higher incomes” than those typically served by HUD-approved housing counselors.

Also, while credit conditions were tight from 2013 through 2016 when prospective homebuyers were enrolled in the study, the economy had “very low unemployment” during the 2019-20 follow-up period when researchers compared the financial health of study participants who had received housing education and counseling to those who had not.

Richardson also noted that there have been several improvements made to the tools used by HUD-approved counseling agencies since the study was conducted including programs focused on providing culturally sensitive and linguistically appropriate services to reach demographic groups who are underserved.

Study goals

HUD commissioned the Abt study in 2011 in the wake of the 2007-09 subprime mortgage crash and Great Recession.

Richardson, who leads HUD’s research arm of approximately 145 staff members, said the idea was to test a theory: That more education and counseling for prospective homebuyers would reduce future delinquency and foreclosure risk.

While other studies had shown positive or neutral results of homebuyer education or counseling, Richardson said Congress and researchers “have long recognized the importance of a true randomized experimental research demonstration” that could answer a broad set of questions, including:

Todd Richardson

“What if we were to offer education and counseling to all individuals asking lenders about getting a home loan? How many would be interested? Which method — in-person or remote — would be more effective? How many would complete the education and counseling? Do education and counseling reduce mortgage delinquencies? Do education and counseling have other impacts on the homebuyer and homeowner experience?”

Between September 2013 and February 2016, the study randomized 5,854 prospective first-time homebuyers from 28 large metropolitan areas into two treatment groups that were offered free housing counseling services — and a control group that was not.

Within the two treatment groups, 55 percent accepted either some or all of the education curriculum and one-on-one counseling offered, but only 25 percent completed all of the offered services.

One treatment group was offered in-person services and the other received education and counseling remotely. Regardless of how the services were delivered, each participant in the treatment groups received an average of six to eight hours of education and about one hour of counseling.

Researchers were encouraged that there “was no discernible difference” in impacts between treatment groups.

“As a result, the relatively low cost of providing services virtually may provide an opportunity to expand access to other populations without a detrimental effect on program outcomes,” the study concluded.

But in terms of the most important study outcomes — credit scores and 60-day delinquencies — the analysis “found no detectable differences” between the treatment groups and the control group during the 2019-20 follow-up period.

The treatment and control groups all had average credit scores of about 720, up from about 707 when the prospective homebuyers enrolled in the study. The rate of ever being 60 days delinquent was about 5 percent across the study sample, with no difference between the two treatment and control groups.

Because the backdrop for the study “was largely that of a strong housing market and growing economy … its findings should be viewed with that lens,” the study’s authors noted. “The study’s estimates may not generalize to a different set of market conditions.”

And the improvements that women and young adults, who received homebuyer education and counseling, saw in their credit scores show “that these services may be particularly effective for those two subgroups, who are not typically represented as the average housing counseling client,” the study concluded.

But the fact that there was no specific benefit for minority homebuyers, “indicates the need for holistic policy and programmatic interventions to address the longstanding and complex structural barriers that exist for African-Americans and Hispanics,” Richardson said. That’s something that “a light touch intervention” like a few hours of counseling is “unable to accomplish.”

Another interesting study finding was that those who received housing education and counseling were more likely to have higher levels of student loan debt than members of the control group — $1,496 on average, by the time researchers followed up with them.

But that debt was balanced by higher levels of savings and investments ($4,799 on average) and lower levels of credit card debt ($492 less, on average) than members of the control group.

Implications for policymakers

For policymakers looking for ways to create more homeownership opportunities, the study suggests they might get more bang for the buck by providing education and counseling remotely, but those programs may need to be customized to specific populations.

“First, for a policy of broadly offering free homebuyer education and counseling to be worthwhile, its benefits need to outweigh its costs,” the study’s authors said. “Given that there is no discernable difference in impacts between remote and in-person services, it may be possible to keep the cost of offering these services relatively low. To ensure a net benefit, however, the intervention itself likely needs to be retooled so that its impacts reach a broader range of outcomes and populations.

“Fortunately, over the past several years a growing body of research has documented the types and characteristics of effective financial education interventions. This research has highlighted, among other things, the importance of customization of financial education interventions to specific populations and focusing on improving financial skills. Opportunities for homebuyer education and counseling services might be reimagined in a way that will lead to greater impact for more people.”

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Email Matt Carter

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