A review of approximately 75,000 mortgage loans originated in 2007, 2008 and 2009, when residential mortgage underwriting standards began to tighten, quantifies the positive effect of financial education on first-mortgage loan performance.
Compared to those who did not, homebuyers who received prepurchase housing counseling from NeighborWorks America when the crisis was in full swing were roughly 33% less likely to become seriously delinquent on their mortgage loan “within two years of origination.”
Conducted by Neil Mayer and Associates and Experian, the study is based on prepurchase services provided by the NeighborWorks America network of housing counselors.
The study also found that counseling is similarly effective with repeat homebuyers who also are about one-third less likely to fall 90 days or more behind in their mortgages compared to repeat homebuyers who didn't receive housing counseling and education.
These findings matter to the mortgage industry because a significant number of seriously delinquent mortgage loans end up in foreclosure and accrue millions of dollars in losses.
What makes this finding important, according to Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard University, is that it should help correct any possible bias, “because people who self-select to receive counseling may also have a greater propensity to repay their loans."
Mortgage lenders, servicers and policy makers should take note of “the compelling evidence that prepurchase counseling has a significant impact on reducing serious loan delinquencies within the first two years after a mortgage loan is originated," Belsky said.