Mortgage Industry, and Local Governments Could Save Tens of Millions of Dollars if NeighborWorks Pre-Purchase Housing Counseling Education Were More Widely Available
Washington, D.C. – NeighborWorks America today released new peer-reviewed research that finds homebuyers who receive NeighborWorks pre-purchase housing counseling and education are nearly one-third less likely to fall behind 90 days or more on their mortgages within two years of origination, than consumers who don’t receive NeighborWorks pre-purchase counseling and education. The research findings have important implications for the mortgage industry because a significant number of seriously delinquent mortgage loans end up in foreclosure, costing the mortgage industry as a whole millions of dollars.
The research was conducted by Neil Mayer and Associates and Experian, and is based on approximately 75,000 mortgage loans originated in 2007, 2008 and 2009, when residential mortgage underwriting standards began to tighten. The study used econometric methods to measure whether and to what extent pre purchase services provided by the NeighborWorks network affect first mortgage loan performance. The research demonstrates a significant return to investment in NeighborWorks network pre-purchase counseling and education, in terms of avoiding the costs related to delinquency and foreclosure, and its associated impacts on families, their communities, and servicers.
“NeighborWorks America has long known that pre-purchase housing counseling and education, provided by certified professionals in our network helps create homeowners who are less likely to become seriously delinquent on their mortgages,” said NeighborWorks America CEO Eileen Fitzgerald. “Using data from the NeighborWorks network and its customers who received this important advice and guidance, and comparing it to homebuyers who didn’t receive similar housing counseling and education, we now know the empirical value that NeighborWorks housing counseling and education provide.”
“Policy makers and lenders should take note. This study provides compelling evidence that pre-purchase counseling has a significant impact on reducing serious loan delinquencies within the first two years after a mortgage loan is originated,” said Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard University.
Belsky added, “What makes the study so important is that it goes a long way towards correcting for any possible bias introduced because people who self-select to receive counseling may also have a greater propensity to repay their loans.
While the NeighborWorks America research announced today addresses mortgage loans that are 90 days or more delinquent, on average 14% of mortgage loans that are that seriously delinquent end up in foreclosure, according to data from National Association of Realtors. Estimates vary, but total losses due to foreclosure borne by local governments, servicers and households can exceed $50,000 per foreclosure, according to a report from the Joint Economic Committee of the U.S. Congress.
Moreover, recently the Bipartisan Policy Center’s Housing Commission underscored the important value of quality housing counseling. According to the report, Housing America’s Future, ‘…housing counseling can improve prospective borrowers’ access to affordable, prudent mortgage loans, especially for families that otherwise might not qualify or who may experience other barriers to mainstream lending.’
Interestingly, the NeighborWorks America research shows that even repeat homebuyers benefit from receiving quality housing counseling and education. According to the report, repeat homebuyers who received housing counseling also are about one-third less likely to fall 90 days or more behind in their mortgages than repeat homebuyers who didn’t receive housing counseling and education.
“More analysis is required to determine the factors for the repeat homebuyer results,” said Fitzgerald. “But one thing is clear from the data: NeighborWorks pre-purchase housing counseling and education is effective, even if you’ve been a homeowner before.”
About NeighborWorks America
For 35 years, NeighborWorks America has created opportunities for people to improve their lives and strengthen their communities by providing access to homeownership and to safe and affordable rental housing. In the last five years, NeighborWorks organizations have generated more than $19.5 billion in reinvestment in these communities. NeighborWorks America is the nation’s leading trainer of community development and affordable housing professionals.
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