Homeowners less likely to default on mortgage payments if they have pre-purchase counseling, study reveals

Home in Vegas.A recent study found that homeowners who received pre-purchase counseling were one-third less likely to become 90+ days delinquent on their home mortgages.

Neil S. Mayer and Kenneth Temkin of Neil S. Mayer and Associations in conjunction with Experian, a credit reporting agency, conducted a study of the effectiveness of NeighborWorks, a homeownership counseling program. Using information on about 75,000 loans originated between October 2007 and September 2009, the study analyzes the impact of NeighborWorks-network-provided pre-purchase counseling on the performance of counseled borrowers’ mortgages within two years after they are originated, compared to mortgage performance of borrowers who receive no such services.

The data used in this study consist of information on 18,258 clients who received pre-purchase counseling from NeighborWorks organizations at some point between October 2007 and September 2009 and who also purchased a home within this 24-month period. Experian selected a comparison group of 56,298 borrowers with similar observable characteristics to those of NeighborWorks pre-purchase clients. The results of the study indicate that pre-purchase counseling and education from NeighborWorks has a positive impact on a borrower’s likelihood to stay current on their mortgage payments. Specifically, borrowers who received pre-purchase counseling from NeighborWorks programs were one-third less likely to be 90+ days behind on their home loans.

Interestingly, the findings were consistent across years of loan origin, even during the period of financial crisis and through mortgage market changes. The findings also showed that the impact was equal among first time buyers and repeat buyers.

Here are a few more highlights from the study:

  • For loans originated in 2007, the share of first time buyers who were 90+ days delinquent on their homes loans within the first 24 months and did NOT have pre-purchase counseling from NeighborWorks was 6.9 percent.
  • For loans originated in 2007, the share of first time home buyers who were 90+ days delinquent on their home loans within the first 24 months and DID receive counseling from NeighborWorks was only 4.7 percent.

For more information on the study’s findings, read the New York Times’ article here: http://www.nytimes.com/2013/03/31/realestate/the-benefits-of-prepurchase-mortgage-counseling.html?_r=0&adxnnl=1&adxnnlx=1365699104-+q2PCuNK6UclHEpYCU07ew

NeighborWorks is a homeownership initiative program that provides pre-purchase counseling and homeownership education resources. Since Congress first developed the program in 1978, NeighborWorks has provided pre-purchase home ownership counseling consisting of eight hours of group education and individual counseling sessions. The counseling includes an initial orientation and overview of the home purchase process; an in-depth analysis of the potential homebuyer’s personal and financial situation; details about house selection, the financing process, closing, and other key issues of the home buying process and post-purchase concerns, such as home maintenance and community involvement. To learn more about this program, visit their website: http://www.nw.org/network/index.asp

 

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