Does Home Buyer Education Really Help?

March 4, 2016

Mortgage giants like Fannie Mae and Freddie Mac believe that educating home buyers about the home ownership process will help prevent mistakes. But new studies are questioning the effectiveness of these education efforts. 

“There is widespread agreement in the industry that home buyer counseling can help prevent some of the mistakes made during the housing boom,” Freddie Mac officials note in this month’s Insight and Outlook edition. “However, early studies of the impact of counseling produced sometimes conflicting or inconclusive results and raised questions about the effectiveness of borrower education and counseling.”

For example, a study of 40,000 participants involved in Freddie Mac’s Affordable Gold Loans Program found that borrowers who underwent classroom and home study counseling had lower rates or serious delinquency by 26 percent and 21 percent, respectively. Individual counseling to borrowers was found to reduce serious delinquency by 34 percent.

But critics question whether the reduction were linked to the education.

"Perhaps the borrowers who received counseling also were more high-educated than the borrowers in the other group,” Freddie Mac’s article notes. “Maybe they had a greater disposition or ability to apply the information provided by the education course. Maybe they had higher credit scores than the other borrowers."

A 2014 study by the Federal Reserve Bank of Philadelphia evaluated first-time home buyers who received prior counseling to purchase a home over a five-year period. The counseling included one-on-one instruction on budgeting and the home buying process as well as a two-hour pre-purchase workshop that included information about applying for a mortgage, shopping for a home, and about closing. The buyers raised their credit scores an average of 16.2 points after the training, the study found.

Source: “Does Homeownership Counseling Make a Difference?” Mortgage News Daily (March 2, 2016)