Housing Counseling

Forms of Counseling

Homeownership counseling is a broad term that refers to four types of activities defined according to timing, curriculum content, and method of delivery. Prepurchase education provides instruction about the process and the desirability of home buying. Prepurchase counseling offers one-on-one advice on ways to address barriers to home purchase. Postpurchase education provides instruction on how to enhance the sustainability of the homeowner-ship experience. Finally, postpurchase counseling involves one-on-one crisis intervention to help homeowners who have become financially distressed or delinquent on their mortgage. All these activities can be offered in person (one-on-one or in classrooms), web-based, by phone, or simply in the home via materials such as workbooks.

Origins and Effects

The modern counseling industry in the United States has its origins in the 1968 Housing and Urban Development Act, which allowed the U.S. Department of Housing and Urban Development (HUD) to authorize public and private organizations to provide counseling to mortgage borrowers. In 1971, HUD set up a system to approve housing counseling agencies, but it was not until Section 801 of the 1974 Housing and Community Development Act that HUD was authorized to actually fund counseling efforts. The National Federation of Housing Counselors (NFHC) was created in 1973 to provide training for its members and lobby for homeownership counseling. A “community services” test created in a 1989 amendment to the Community Reinvestment Act led many lenders to provide financial support to community organizations, which could provide homeownership counseling and provide the lenders with “mortgage ready” applicants. Similarly, in order to achieve their affordable housing goals established in 1992, Fannie Mae and Freddie Mac established special loan programs for underserved borrowers and communities, often requiring counseling for participation.

According to a HUD report, 1.7 million Americans in 2007 received housing education and counseling from over 1,800 approved nonprofit organizations—a figure that does not capture for-profit and lender-provided counseling. Most of these organizations are small and cobble together funding from multiple sources. HUD's Housing Counseling program is the single largest source of funding, accounting for 14% of funding for the entire industry. Other federal sources, such as Community Development Block Grants and HOME funds, account for an additional 23%. While most clients of counseling services are White, they are also disproportionately minority and low income. Eighty [Page 352]percent of counseling recipients have incomes below 80% of area median income (AMI), including half below 50% of AMI.

Despite the widespread use of housing counseling, its positive effects have been difficult to document. Better informed consumers are expected to choose better mortgages, obtain lower interest rates, improve their financial situation, and ultimately enhance the sustainability of the homeownership experience, as reflected in lower default rates. Unfortunately, empirical evidence on these effects is far from conclusive, possibly because most studies have evaluated small-scale counseling programs that offer a wide range of services to many different clients.

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