from the Philadelphia Fed
Homeownership represents many things to many people. For some, the home is the focal point of the family unit, the place where cherished memories are enjoyed, from raising children to celebrating special family occasions. For others, it represents the foundation of their financial investments and serves as the basis for accumulating potential wealth in the future. Yet for many, particularly those with low and moderate incomes, it is the elusive linchpin of the American dream. Perhaps the major barrier to the benefits of homeownership for many with low and moderate incomes is past credit problems, which are often aggravated by deficient financial management skills.
In addition, many people are intimidated by the mortgage-lending process, stemming from their lack of knowledge of its inner workings. Many people maintain that homeownership counseling is available to navigate a number of the aforementioned impediments. However, the effectiveness of such counseling over time continues to be debated. Previous studies have made important strides in understanding the value of homeownership counseling, but more work is still needed. More specifically, two researchers (Michael Collins and Collin O’Rourke, 2011), who are familiar with studies on the subject, have observed that “homeownership education and counseling have never been rigorously evaluated through a randomized field experiment.”
The Community Development Studies and Education Department of the Federal Reserve Bank of Philadelphia, with the assistance of Abt Associates, a consulting firm, and Clarifi, a nonprofit counseling agency, conducted a study structured to address the concerns raised about previous efforts that examined the effectiveness of homeownership counseling received by first-time homebuyers. In particular, the study employed an experimental design, in which participants were randomly assigned to either a treatment or control group and followed for several years after they had received assistance. Those assigned to the control group received a two-hour homebuyer’s workshop and no other services, while those in the treatment group received the homebuyer’s workshop as well as one-on-one counseling. Additional information was gathered to support the estimates that gauged the creditworthiness of the study participants over time. The study provides valuable insight on the influence of counseling on credit scores, total debt, and delinquencies in payments.
The key findings are as follows: