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Pre-purchase counseling reduces mortgage delinquency, no matter how it’s delivered

New research from Freddie Mac suggests that pre-purchase counseling may be even more effective at reducing mortgage delinquency than previously thought. And the delivery method? It doesn’t seem to matter.

According to the new study, pre-purchase counseling reduces 90-day mortgage delinquency rates by 29 percent. The findings relate to low- and moderate-income, first-time homeowners with Freddie Mac mortgages originated between 2000 and 2008. Prior research on mortgages originated in the 1990s found a 19-percent reduction in 90-day delinquency rates.

While the housing field has long recognized the effectiveness of pre-purchase counseling, the evidence had largely suggested that more personal, in-person instruction was better. This study calls that into question. The results were nearly the same whether the counseling was delivered in a classroom, via home study, or even on the phone or online.

This is a stunning change from the state of knowledge previously.

In the earlier study of mortgages originated in the 1990s, the reduction in delinquency rates was largest for individual counseling, followed by classroom, and then home study. Phone and online counseling had no significant effect at that point.

Rural borrowers? People with inflexible schedules? It may be time for you to exhale. It looks like we’ve gotten a lot better at developing effective ways to deliver counseling remotely. (See new online counseling efforts by the Housing Partnership Network and Freddie Mac.)

And how does housing counseling get funded? No single source dominates, but federal budget watchers take note: This highly cost-effective tool for preventing mortgage delinquency gets more than a third of its funds from HUD housing counseling funds, CDBG, HOME, and other federal sources. And these sources have been cut or are well below historical levels.

If you are just such a federal budget watcher and a housing-minded professional to boot, we encourage you to attend this Friday’s Annual Budget Forum, where a panel of experts from HUD, PHAs, and nonprofits will discuss the impacts of the President’s FY 2014 budget proposals on these and many other important housing programs. You’ll also hear from me about the latest data on housing affordability for working households. Register online (and free) here.

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