Homeownership Counseling
Although Research Suggests Some Benefits, Implementation and Evaluation Challenges Exist Gao ID: GAO-11-925T September 14, 2011Homeownership counseling can help consumers learn about buying a home and give them tools to deal with setbacks that could keep them from making timely mortgage payments. The Department of Housing and Urban Development (HUD) approves and provides grants to housing counseling agencies and has also implemented a requirement that borrowers seeking federally insured reverse mortgages through the Home Equity Conversion Mortgage (HECM) program receive counseling before taking out a HECM. The U.S. Department of the Treasury (Treasury) has also implemented a counseling requirement as part of its mortgage modification efforts under the Home Affordable Modification Program (HAMP). This statement discusses (1) what research suggests about the effectiveness of homeownership counseling and the challenges of conducting such research, (2) shortcomings that prior GAO work found in federal agencies' implementation of homeownership counseling requirements, and (3) the status of efforts to establish an Office of Housing Counseling within HUD. In preparing this statement, GAO relied on its past work on homeownership counseling, including a review of research and interviews with federal agency staff on implementing and evaluating counseling programs.
The body of literature on homeownership counseling does not provide conclusive findings on the impact of all types of counseling. Recent research on foreclosure mitigation counseling--which helps financially distressed homeowners who are delinquent on payments--suggests that it can help homeowners avoid foreclosure and prevent them from lapsing back into default. Findings on prepurchase counseling--which helps potential homebuyers learn about buying a home and explains the financial responsibilities of homeownership--are less clear. One study concluded that such counseling lowered the default rate for new homeowners, but other studies showed no effect. Efforts to measure the impact of homeownership counseling have been hampered by a lack of data, as well as by challenges in designing studies and creating effective performance measures. Further studies are under way at HUD and Fannie Mae that are designed to overcome some of these limitations. Prior GAO work identified shortcomings in the implementation of homeownership counseling requirements for two federal programs. A 2009 study of the HECM program found that HUD's internal controls did not ensure that counselors were complying with program requirements. HUD later made improvements to the HECM program to address GAO's recommendations. Another GAO study from 2009 found that Treasury did not effectively track whether borrowers required to seek counseling under HAMP actually received it or whether counseling reduced the rate of redefaults. Treasury officials said that they had not implemented a monitoring process because it would be too burdensome for Treasury and mortgage servicers. They also did not plan to assess the effectiveness of counseling in limiting redefaults, in part because they believed that the benefits of counseling on the performance of borrowers with high debt burdens were well documented. GAO continues to believe that monitoring and assessment would provide valuable information on whether the counseling requirement is having its intended effect. HUD is establishing a new Office of Housing Counseling, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act). According to HUD, the agency is developing a reorganization plan but is unable to estimate when it will be submitted to Congress. Budget constraints could affect the new counseling office. Although the Dodd-Frank Act authorized $45 million per year through fiscal year 2012 for the operations of the new office, HUD has not received appropriations for this purpose. In addition, appropriations for fiscal year 2011 eliminated HUD's housing counseling assistance funds, which are primarily grant funds for approved counseling agencies. GAO has made recommendations to HUD and Treasury to improve oversight and evaluation of their homeownership counseling requirements. HUD implemented the recommendations, while Treasury said that implementation would be too burdensome.
GAO-11-925T, Homeownership Counseling: Although Research Suggests Some Benefits, Implementation and Evaluation Challenges Exist
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United States Government Accountability Office:
GAO:
Testimony:
Before the Subcommittee on Insurance, Housing and Community
Opportunity, Committee on Financial Services, House of Representatives:
For Release on Delivery:
Expected at 2:00 p.m. EDT:
Wednesday, September 14, 2011:
Homeownership Counseling:
Although Research Suggests Some Benefits, Implementation and
Evaluation Challenges Exist:
Statement of Alicia Puente Cackley, Director:
Financial Markets and Community Investment:
GAO-11-925T:
GAO Highlights:
Highlights of GAO-11-925T, a testimony before the Subcommittee on
Insurance, Housing and Community Opportunity, Committee on Financial
Services, House of Representatives.
Why GAO Did This Study:
Homeownership counseling can help consumers learn about buying a home
and give them tools to deal with setbacks that could keep them from
making timely mortgage payments. The Department of Housing and Urban
Development (HUD) approves and provides grants to housing counseling
agencies and has also implemented a requirement that borrowers seeking
federally insured reverse mortgages through the Home Equity Conversion
Mortgage (HECM) program receive counseling before taking out a HECM.
The U.S. Department of the Treasury (Treasury) has also implemented a
counseling requirement as part of its mortgage modification efforts
under the Home Affordable Modification Program (HAMP). This statement
discusses (1) what research suggests about the effectiveness of
homeownership counseling and the challenges of conducting such
research, (2) shortcomings that prior GAO work found in federal
agencies‘ implementation of homeownership counseling requirements, and
(3) the status of efforts to establish an Office of Housing Counseling
within HUD.
In preparing this statement, GAO relied on its past work on
homeownership counseling, including a review of research and
interviews with federal agency staff on implementing and evaluating
counseling programs.
GAO has made recommendations to HUD and Treasury to improve oversight
and evaluation of their homeownership counseling requirements. HUD
implemented the recommendations, while Treasury said that
implementation would be too burdensome.
What GAO Found:
The body of literature on homeownership counseling does not provide
conclusive findings on the impact of all types of counseling. Recent
research on foreclosure mitigation counseling”-which helps financially
distressed homeowners who are delinquent on payments-”suggests that it
can help homeowners avoid foreclosure and prevent them from lapsing
back into default. Findings on pre-purchase counseling-”which helps
potential homebuyers learn about buying a home and explains the
financial responsibilities of homeownership-”are less clear. One study
concluded that such counseling lowered the default rate for new
homeowners, but other studies showed no effect. Efforts to measure the
impact of homeownership counseling have been hampered by a lack of
data, as well as by challenges in designing studies and creating
effective performance measures. Further studies are under way at HUD
and Fannie Mae that are designed to overcome some of these limitations.
Prior GAO work identified shortcomings in the implementation of
homeownership counseling requirements for two federal programs. A 2009
study of the HECM program found that HUD‘s internal controls did not
ensure that counselors were complying with program requirements. HUD
later made improvements to the HECM program to address GAO‘s
recommendations. Another GAO study from 2009 found that Treasury did
not effectively track whether borrowers required to seek counseling
under HAMP actually received it or whether counseling reduced the rate
of redefaults. Treasury officials said that they had not implemented a
monitoring process because it would be too burdensome for Treasury and
mortgage servicers. They also did not plan to assess the effectiveness
of counseling in limiting redefaults, in part because they believed
that the benefits of counseling on the performance of borrowers with
high debt burdens were well documented. GAO continues to believe that
monitoring and assessment would provide valuable information on
whether the counseling requirement is having its intended effect.
HUD is establishing a new Office of Housing Counseling, as required by
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act). According to HUD, the agency is developing a
reorganization plan but is unable to estimate when it will be
submitted to Congress. Budget constraints could affect the new
counseling office. Although the Dodd-Frank Act authorized $45 million
per year through fiscal year 2012 for the operations of the new
office, HUD has not received appropriations for this purpose. In
addition, appropriations for fiscal year 2011 eliminated HUD‘s housing
counseling assistance funds, which are primarily grant funds for
approved counseling agencies.
View [hyperlink, http://www.gao.gov/products/GAO-11-925T]. For more
information, contact Alicia Puente Cackley at (202) 512-8678 or
cackleya@gao.gov.
[End of section]
Chairman Biggert, Ranking Member Gutierrez, and Members of the
Subcommittee:
I am pleased to be here to participate in today's hearing on housing
counseling. As you know, housing counseling can help consumers
determine whether and when to purchase a home, how to manage a
mortgage, and how to deal with setbacks that could limit their ability
to make timely mortgage payments. This subcommittee's focus on such
assistance is critical, given that the number of homes in foreclosure
and of homeowners in financial distress remains at historically high
levels. In the second quarter of 2011, more than 3.4 million home
mortgages were 90 or more days delinquent or in the foreclosure
process, and estimates indicate that more than one in five mortgage
borrowers owe more on their mortgages than their homes are worth. The
Department of Housing and Urban Development (HUD) approves and
provides grants to housing counseling agencies. It has also
implemented a requirement that federally insured reverse mortgage
borrowers participating in the Home Equity Conversion Mortgage (HECM)
program receive counseling before getting their mortgages.[Footnote 1]
The U.S. Department of the Treasury (Treasury) has also implemented a
counseling requirement as part of its mortgage modification efforts
under the Home Affordable Modification Program (HAMP).[Footnote 2]
My statement today is based on recent work we have conducted related
to housing counseling and will discuss (1) what research suggests
about the effectiveness of homeownership counseling and the challenges
of conducting such research, (2) shortcomings that our prior work
found in federal agencies' implementation of homeownership counseling
requirements, and (3) the status of efforts to establish an Office of
Housing Counseling within HUD.[Footnote 3]
In preparing the reports on which this testimony is based, we reviewed
research and conducted interviews with appropriate researchers and
agency staff on the impact of homeownership education and counseling,
HUD's controls over reverse mortgage counseling, HUD's plans for
creating an Office of Housing Counseling, Treasury's processes and
documentation for the Financial Education and Counseling Pilot
Program, and Treasury's implementation of a counseling requirement
under HAMP.[Footnote 4] We also interviewed selected homeownership
counseling providers and mortgage market researchers as well as HUD
and Treasury officials.
We performed the work for the reports underlying this testimony as
part of our ongoing oversight responsibilities from April 2008 through
July 2011. We performed our work in accordance with generally accepted
government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence we obtained
provides a reasonable basis for our findings and conclusions based on
our audit objectives.
Background:
Homeownership counseling refers to pre-purchase and post-purchase
counseling of homeowners and is a subset of housing counseling, which
can also include assistance to renters and homeless populations.
Prepurchase counseling generally refers to counseling for potential
homebuyers to learn about whether and when to buy a home and how to
manage a mortgage, budget for repairs, and fulfill other financial
responsibilities of being a homeowner. Post-purchase counseling
primarily refers to foreclosure mitigation counseling, which focuses
on helping financially distressed homeowners avoid foreclosure by
working with lenders to cure mortgage delinquency but can also include
subjects such as home maintenance. Counseling can take place in
person, over the telephone, via a self-study computer module, or with
a workbook, and can vary in length from a single session to several
sessions spread over a period of weeks or months.
The federal government funds homeownership counseling through a number
of programs at HUD, Treasury, the Department of Defense, and the
Department of Veterans Affairs. Congress has also provided targeted
support for foreclosure mitigation counseling. For example, in recent
years, Congress has appropriated funds to the National Foreclosure
Mitigation Counseling (NFMC) Program, which was designed to rapidly
expand the availability of foreclosure mitigation counseling. NFMC is
administered by NeighborWorks® America, a government-chartered,
nonprofit corporation with a national network of affiliated
organizations, which competitively distributes NFMC funds to other
recipients.
Findings from the Limited Research Available on Homeownership
Counseling Are Mixed:
The limited body of literature on homeownership counseling does not
provide conclusive findings on the impact of all types of
homeownership counseling. Some studies suggest that foreclosure
mitigation counseling can be effective in improving mortgage outcomes
(e.g., remaining current on mortgage payments versus defaulting or
losing the home to foreclosure). However, findings on prepurchase
counseling are less clear. Research on homeownership counseling is
limited in part because of data limitations and other challenges.
Although Research on Foreclosure Mitigation Counseling Suggests
Benefits, Results on Other Types of Counseling Are Mixed:
Recent research on foreclosure mitigation counseling suggests that it
can help struggling mortgage borrowers avoid foreclosure and prevent
them from lapsing back into default, especially if the counseling
occurs early in the foreclosure process. A 2010 evaluation of NFMC
found that homeowners who received counseling under the program were
more likely to receive loan modifications and remain current on their
mortgages after counseling, compared with a group of non-NFMC
borrowers with similar observable characteristics. Specifically, the
authors estimated that borrowers who received NFMC counseling were 1.7
times more likely to "cure" their foreclosure (i.e., be removed from
the foreclosure process by their mortgage servicer) than borrowers who
did not receive NFMC counseling. The authors also estimated that loan
modifications received by NFMC clients in the first 2 years of the
program resulted in monthly mortgage payments that averaged $267 less
than they would have paid without the program's help. Additionally,
the study found that in 2008, borrowers who received NFMC counseling
before a loan modification had an estimated 53 percent better chance
of bringing their mortgages current than borrowers who did not receive
premodification counseling.[Footnote 5] Other studies of foreclosure
prevention counseling have also found that the timing of the
counseling was critical and that the earlier in the foreclosure
process borrowers received counseling, the more likely they were to
have a positive outcome.[Footnote 6]
The findings on the impact of prepurchase counseling are less clear.
For example, a 2001 study analyzed data on the performance of about
40,000 mortgages made under a Freddie Mac program for low-to moderate-
income homebuyers, a large majority of whom received prepurchase
counseling.[Footnote 7] The authors compared the loan performance of
program participants who received different types of prepurchase
counseling to the loan performance of participants who did not. The
study found that borrowers who underwent individual and classroom
counseling were 34 and 26 percent less likely, respectively, to become
90 days delinquent on their mortgages than similar borrowers who did
not undergo counseling.[Footnote 8] However, subsequent studies have
found either no effect on loan performance or effects that were
potentially attributable to other factors. For example, a 2008 study
of about 2,700 mortgage borrowers found that prepurchase counseling
had no effect on a borrower's propensity to default.[Footnote 9] A
2009 study examined a legislated pilot program in 10 Illinois ZIP
codes that mandated prepurchase counseling for mortgage applicants
whose credit scores were relatively low or who chose higher-risk
mortgage products such as interest-only loans. Although the authors
found that mortgage default rates for the counseled low-credit score
borrowers were lower than those for a comparison group, the authors
attributed this result primarily to lenders tightening their screening
of borrowers in response to stricter regulatory oversight.[Footnote 10]
Additional empirical research on the impact of housing counseling is
under way at HUD and Fannie Mae. HUD's Office of Policy Development
and Research issued a broad overview of the housing counseling
industry in 2008 and is currently conducting two studies on mortgage
outcomes related to foreclosure mitigation and prepurchase counseling
programs.[Footnote 11] The foreclosure mitigation study will follow
880 individuals and evaluate mortgage outcomes 12 months after
counseling ends. HUD officials said that they expected the study to be
published in 2012. The prepurchase counseling study will track 1,500
to 2,000 individuals who receive different types of counseling (one-on-
one, group, Internet, or telephone) or no counseling. HUD officials
said that they expected data collection for this study to begin in
2012. In addition, Fannie Mae is conducting both prepurchase and post-
purchase counseling studies. According to Fannie Mae officials, the
prepurchase study will track over a 2-year period the loan performance
of borrowers who received counseling prior to purchasing a home. The
post-purchase study will evaluate the impact of telephone counseling
on existing homeowners who receive loan modifications through HAMP.
Measuring the Effectiveness of Homeownership Counseling Presents
Challenges:
Conducting research on homeownership counseling outcomes is
challenging for a variety of reasons, and limitations in the
methodologies used in existing studies make it difficult to generalize
the results or compare outcomes across various studies. According to
housing counseling researchers we spoke with, the primary barrier in
the study of housing counseling is a lack of data. Long-term data on
counseling outcomes are limited because of the difficulty of tracking
counseling recipients after the counseling ends. In addition, many
counseling agencies are hesitant to request sensitive personal
information from clients. One researcher we spoke with told us that
the ability to track loan performance over time is critical to an
effective assessment of housing counseling programs. For this reason,
some counseling researchers have begun working with lenders and
mortgage servicers to access information on the payment status (e.g.,
current or delinquent) of counseling recipients and the long-term
outcomes of their mortgages. Another limitation of the current
research is the lack of experimental research design, which is
considered the best approach for evaluating differences in an
intervention such as counseling and comparing it to no intervention.
[Footnote 12] We did not identify any published studies that evaluated
homeownership counseling using an experimental design. For this and
other reasons, researchers have been hesitant to draw firm conclusions
from the published literature. For example, differences among
counseling programs--in terms of curriculum, intervention method
(e.g., one-on-one, telephone, or classroom), level of intervention
(e.g., intensity or amount of time spent counseling), and outcome
measures--make it difficult to draw broader conclusions about the
impact of housing counseling.
Establishing meaningful measures of the impact of homeownership
counseling programs is also a significant challenge. Our recent
evaluation of Treasury's Financial Education and Counseling Pilot
Program illustrates this point.[Footnote 13] As a condition of
receiving grant funds under the program, grantees are required to
report on the results of five performance goals within 6 months of
disbursement and annually thereafter. We found that some grantees were
calculating the results of their impact measures in erroneous or
misleading ways or were not fully capturing meaningful information,
potentially limiting the usefulness of these data for assessing
program effectiveness. For example, one grantee inaccurately
calculated the average percentage increase in prospective homebuyer
savings. According to the grantee's calculation, a participant who
began a financial education and counseling program with no savings but
subsequently saved $500 was shown to have a 50,000 percent increase in
savings. In fact, a percentage increase cannot be meaningfully
calculated from zero savings because any percentage increase on zero
is infinite. We also identified alternatives to the methods of
calculating impact measures that the grantees were using. For example,
we noted that instead of just measuring changes in clients' savings,
it might be advantageous to focus on net savings--that is, savings
minus debt--to provide a more complete picture of an individual's
financial situation.
Treasury officials told us that they had discussed the specific impact
measures with each grantee in the pilot program but had not provided
guidance on how to calculate the results. We recommended that Treasury
provide additional guidance or technical assistance to the grantees on
how to accurately and meaningfully calculate the results of the impact
measures. Treasury stated that it concurred with the observations in
our report and plans to provide grantees with supplemental guidance on
impact measures before the next reporting deadline.
Our Work Has Identified Shortcomings in the Implementation of Some
Homeownership Counseling Requirements:
In prior work, we found shortcomings in HUD's and Treasury's
implementation of homeownership counseling requirements for the HECM
and HAMP programs. In 2009, we evaluated HUD's implementation of the
counseling requirements associated with the HECM program and found
that HUD's internal controls did not provide reasonable assurance that
counseling providers were complying with the program requirements.
[Footnote 14] GAO's undercover participation in 15 HECM counseling
sessions found that while the counselors generally conveyed accurate
and useful information, none of the counselors covered all of the
topics required by HUD, and some overstated the length of the sessions
in HUD records. For example, 7 of the 15 counselors did not discuss
required information about alternatives to HECMs, and 6 of the 15
counselors overstated the length of the session. HUD had several
internal controls designed to help ensure that counselors conveyed
required information to prospective HECM borrowers but had not tested
the effectiveness of these controls and lacked procedures to help
ensure that records of counseling sessions were accurate. Because of
these weaknesses, some prospective borrowers may not have received all
of the information necessary to make informed decisions about
obtaining a HECM.
We recommended specific changes that HUD should make to improve the
effectiveness of the agency's internal controls so that they provided
reasonable assurance of compliance with HECM counseling requirements.
Since our report, HUD has implemented our recommendations by creating
additional internal controls and guidance for counselors on how to
comply with program responsibilities, as well as developing a "mystery
shopping" initiative to better evaluate compliance among HECM
counselors.
In 2009, we also evaluated Treasury's implementation of the
foreclosure mitigation counseling requirements of HAMP.[Footnote 15]
We found that Treasury did not plan to systematically track borrowers
with high debt burdens, who were required to obtain foreclosure
mitigation counseling, to determine whether they actually received
counseling or if it was effective. Treasury officials told us that
they made this decision because they did not want to deny a loan
modification to borrowers who successfully made modified payments
during a 90-day trial period but did not obtain counseling. Treasury
also did not want to delay modifications under the program until
servicers had arranged to coordinate with counselors to track whether
borrowers obtained counseling. We noted that without knowing whether
borrowers who were required to obtain counseling actually did so or
evaluating the performance of counseled and noncounseled borrowers,
Treasury would not know whether the requirement was meeting its
purpose of reducing redefaults among borrowers with high debt burdens.
We recommended in 2009 that Treasury consider methods of monitoring
whether borrowers required to receive housing counseling as part of
HAMP modifications did receive it and seek to determine whether the
counseling did limit redefaults. Treasury staff said in 2010 that they
had considered options for monitoring the proportion of borrowers that
obtained counseling but had determined that implementing a monitoring
process would be too burdensome for Treasury and mortgage servicers.
Additionally, Treasury officials said they had no plans to assess the
effectiveness of counseling in limiting redefaults, in part because
they believed that the benefits of counseling on the performance of
borrowers with high debt burdens were well documented. We continue to
believe that monitoring the extent to which borrowers receive
counseling and the redefault rates for counseled and noncounseled
borrowers would provide valuable information about whether the
counseling requirement is having its intended effect.
HUD is Creating a New Office for Its Housing Counseling Activities,
but Funding Is Uncertain:
To enhance consumer protections for homebuyers and tenants, the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
requires HUD to establish an Office of Housing Counseling.[Footnote
16] This office is mandated to perform a number of functions related
to homeownership and rental housing counseling, including establishing
housing counseling requirements, standards, and performance measures;
certifying individual housing counselors; conducting housing
counseling research; and performing public outreach. The office is
also mandated to continue HUD's role in providing financial assistance
to HUD-approved counseling agencies in order to encourage successful
counseling programs and help ensure that counseling is available in
underserved areas.
Currently, HUD's housing counseling program operates out of the
Program Support Division within the Office of Single-Family Housing.
[Footnote 17] HUD supports housing counseling through the division in
two ways. First, it approves and monitors housing counseling agencies
that meet HUD criteria and makes information about these agencies
available to consumers on HUD's website. According to HUD officials,
as of August 2011, about 2,700 counseling agencies were HUD-approved.
Second, HUD annually awards competitive grants to approved agencies to
help them carry out their counseling efforts. HUD's housing counseling
program provides funding for the full spectrum of housing counseling,
including prepurchase counseling, foreclosure mitigation counseling,
rental housing counseling, reverse mortgage counseling for seniors,
and homeless assistance counseling. HUD-approved agencies report to
HUD on the number and type of service interactions (e.g., counseling
sessions) they have with clients. Self-reported data on homeownership
counseling conducted by these agencies indicate that service
interactions for foreclosure mitigation counseling rose from about
171,000 in 2006 to more than 1.4 million in 2010, while service
interactions for prepurchase counseling declined from about 372,000 to
about 245,000 over the same period.[Footnote 18]
Besides these two main functions, the Program Support Division and
other HUD staff perform other counseling-related activities, some of
which are similar to the functions the Dodd-Frank Act requires of the
new counseling office. For example, HUD has developed standards and
protocols for reverse mortgage counseling, certifies individual
reverse mortgage counselors, is conducting research on the impact of
homeownership counseling, and recently launched a public awareness
campaign on loan modification scams.
A working group within HUD is in the process of developing a plan for
the new counseling office. According to HUD officials, the primary
change needed to create the new office is the reassignment of staff
who spend time on housing counseling activities but also have other
responsibilities. In July 2011, we reported that HUD expected the new
office to consist of approximately 160 full-time staff members, but
HUD has indicated more recently that the office may be considerably
smaller. In order to move forward with the establishment of the office
and the appointment of a Director of Housing Counseling, HUD must
submit a reorganization plan to Congress. According to a HUD official,
HUD is still developing its proposal for the new counseling office and
is unable to estimate when it will be submitted to Congress.
HUD officials told us that the new counseling office would have
advantages over their current organizational structure. They indicated
that having dedicated resources, staff, and leadership would raise the
profile of the housing counseling function and help the agency build a
more robust capacity in this area. One official noted that getting
sufficient information technology resources for housing counseling had
been difficult and said that a separate counseling office might be
able to compete more effectively with other parts of the agency for
these resources. HUD officials also indicated that the new office
would be organized to help the agency better anticipate and respond to
changing counseling needs and improve interaction with counseling
industry stakeholders. For example, the officials said that the new
office would be organized around functional areas such as policy,
training, and oversight, making it easier for industry stakeholders to
direct their questions or concerns to the appropriate HUD staff.
Additionally, HUD officials told us that the office would work with
the Bureau of Consumer Financial Protection's Office of Financial
Education to coordinate the housing counseling activities of both
organizations.
Mortgage industry participants, consumer groups, and housing
researchers we spoke with were supportive of the new housing
counseling office and believed that it offered opportunities to
enhance HUD's role in the housing counseling arena. For example, some
of the consumer groups stated that the office could help standardize
counseling practices and publicize best practices, further elevating
and professionalizing the counseling industry. In addition,
representatives from several of the consumer groups and researchers
with whom we met stated that the office could help enhance
coordination among counseling agencies by providing opportunities for
improved training, networking, and communication. Furthermore, they
said that the office could potentially support improved data
collection for research on the impact of housing counseling.
Budget constraints could affect the establishment of the new
counseling office and reduce the scale of HUD's housing counseling
activities. Although the Dodd-Frank Act authorized $45 million per
year through 2012 for the operations of the new office, HUD had not
received any appropriations for this purpose as of August 2011. In
addition, appropriations for fiscal year 2011 eliminated HUD's housing
counseling assistance funds, which are primarily grant funds for
approved counseling agencies.[Footnote 19] HUD officials said they
planned to award and obligate about $10 million in unspent fiscal year
2010 counseling assistance funds in the 2011 fiscal year. However, the
officials said that some counseling agencies had already reduced the
level of services they provided due to the elimination of the fiscal
year 2011 funds. Housing counseling groups we spoke with said that the
cuts in HUD funding, which they use to leverage private funds,
ultimately could result in fewer counseling services for prospective
and existing homeowners unless private funds make up the difference.
Chairman Biggert, Ranking Member Gutierrez, and Members of the
Subcommittee, this concludes my prepared statement. I would be happy
to answer any questions you may have at this time.
Contact and Staff Acknowledgments:
For further information on this testimony, please contact me at (202)
512-8678 or cackleya@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this statement. Key contributors to this testimony include
Steve Westley, Assistant Director; Randall Fasnacht; Alise Nacson; and
Emily Chalmers.
[End of section]
Related GAO Products:
Financial Education and Counseling Program. [hyperlink,
http://www.gao.gov/products/GAO-11-737R]. Washington, D.C.: July 27,
2011.
Mortgage Reform: Potential Impacts of Provisions in the Dodd-Frank Act
on Homebuyers and the Mortgage Market. [hyperlink,
http://www.gao.gov/products/GAO-11-656]. Washington, D.C.: July 19,
2011.
Troubled Asset Relief Program: Treasury Actions Needed to Make the
Home Affordable Modification Program More Transparent and Accountable.
[hyperlink, http://www.gao.gov/products/GAO-09-837]. Washington, D.C.:
July 23, 2009.
Reverse Mortgages: Product Complexity and Consumer Protection Issues
Underscore Need for Improved Controls over Counseling for Borrowers.
[hyperlink, http://www.gao.gov/products/GAO-09-606]. Washington, D.C.:
June 29, 2009.
[End of section]
Footnotes:
[1] Reverse mortgages are a type of loan against home equity available
to seniors. Through its HECM program, HUD insures reverse mortgages,
which are made by private lenders, and oversees the agencies that
provide mandatory counseling to prospective HECM borrowers.
[2] A major purpose of HAMP is to modify the first-lien mortgages of
homeowners in danger of foreclosure. Under the first-lien program,
borrowers with high levels of household debt must agree to obtain
counseling.
[3] A list of related GAO products on which this statement is based
can be found at the end of this testimony.
[4] Treasury's Financial Education and Counseling Pilot Program,
authorized pursuant to Section 1132 of the Housing and Economic
Recovery Act of 2008 (Pub. L. No. 110-289), awards grants to eligible
organizations, including HUD-approved housing counseling agencies, to
provide financial education and counseling services to prospective
homebuyers.
[5] Neil S. Mayer, Peter A. Tatian, Kenneth Temkin, and Charles A.
Calhoun, National Foreclosure Mitigation Counseling Program
Evaluation: Preliminary Analysis of Program Efforts, September 2010
Update, prepared for NeighborWorks® America (Washington, D.C., Urban
Institute, 2010). The study focused on the approximately 800,000
borrowers who received NFMC counseling from January 2008 through
December 2009 and a comparison sample of non-NFMC-counseled homeowners.
[6] Lei Ding, Roberto G. Quercia, and Janneke Ratcliffe, "Post-
purchase Counseling and Default Resolution among Low-and Moderate-
Income Borrowers," Journal of Real Estate Research, vol. 30, no. 3
(2008).
[7] Abdighani Hirad and Peter M. Zorn, A Little Knowledge is a Good
Thing: Empirical Evidence of the Effectiveness of Pre-Purchase
Homeownership Counseling, Joint Center for Housing Studies of Harvard
University, Low Income Homeownership Working Paper Series 01.4
(Cambridge, Mass., August 2001).
[8] Hirad and Zorn, A Little Knowledge Is a Good Thing: Empirical
Evidence of the Effectiveness of Pre-Purchase Homeownership Counseling.
[9] Roberto Quercia and Jonathan S. Spader, "Does Homeownership
Counseling Affect the Prepayment and Default Behavior of Affordable
Mortgage Borrowers?" Journal of Policy Analysis and Management, vol.
27, no. 2 (2008).
[10] Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala
Chomsisengphet, and Douglas D. Evanoff, Do Financial Counseling
Mandates Improve Mortgage Choice and Performance? Evidence from a
Legislative Experiment, working paper 2009-07 (Federal Reserve Board
of Chicago, 2009).
[11] Christopher E. Herbert, Jennifer Turnham, and Christopher N.
Rodger, The State of the Housing Counseling Industry, Abt Associates
for the Department of Housing and Urban Development (Washington, D.C.,
September 2008).
[12] Experimental design involves random assignment of subjects to
treatment and control groups to isolate the impact of the treatment.
In the context of prepurchase homeownership counseling, one group of
prospective homebuyers would receive counseling (treatment group) and
the other would not (control group). Experimental design can mitigate
the problem of "selection bias." Individuals who receive housing
counseling, either on their own or by enrolling in a research study,
represent a "self-selected" population. Therefore, they may be
systematically different than individuals who do not seek counseling,
and this potential bias makes generalizing research results for the
self-selected population problematic.
[13] GAO, Financial Education and Counseling Program, [hyperlink,
http://www.gao.gov/products/GAO-11-737R (Washington, D.C.: July 27,
2011).
[14] GAO, Reverse Mortgages: Product Complexity and Consumer
Protection Issues Underscore Need for Improved Controls over
Counseling for Borrowers, [hyperlink,
http://www.gao.gov/products/GAO-09-606] (Washington, D.C.: June 29,
2009).
[15] GAO, Troubled Asset Relief Program: Treasury Actions Needed to
Make the Home Affordable Modification Program More Transparent and
Accountable, [hyperlink, http://www.gao.gov/products/GAO-09-837]
(Washington, D.C.: July 23, 2009).
[16] Dodd-Frank Act, sec. 1442 (codified at 42 U.S.C. sec. 3533(g)).
[17] The Program Support Division has staff in HUD headquarters in
Washington, D.C., and in HUD's four homeownership centers located in
Atlanta, Georgia; Denver, Colorado; Philadelphia, Pennsylvania; and
Santa Ana, California.
[18] Counseling agencies may have multiple service interactions with
the same client. Some of the HUD-approved counseling agencies that
report service interaction data do not receive HUD funds, and those
that do receive HUD grants also rely on other funding sources,
according to HUD officials. As a result, the service interaction data
do not represent solely the counseling services provided with HUD
funds.
[19] In fiscal year 2010, HUD was appropriated $88 million for housing
counseling assistance. The President's budget for fiscal year 2012
requests $88 million for HUD housing counseling assistance.
[End of section]
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