- Borrower Beware
- Volume 18, Number 2
- Managing Editor: Mark D. Shroder
- Associate Editor: Michelle P. Matuga
Prepurchase Counseling Effects on Mortgage Performance: Empirical Analysis of NeighborWorks® America’s Experience
Neil S. Mayer
Neil Mayer & Associates
NeighborWorks® America has a nationwide network of nonprofit affiliates offering prepurchase counseling throughout the country. This study, based on 75,000 loans originated between 2007 and 2009, analyzes the effect of prepurchase counseling and education provided by the network on the performance of counseled borrowers’ mortgages compared with the performance of borrowers who received no such counseling services. The counseling includes help in avoiding deceptive practices, such as misleading starter interest rates without disclosure of their later increase.
The study shows that NeighborWorks® America’s prepurchase counseling works. Clients receiving counseling are one-third less likely to become 90 or more days delinquent during the first 2 years than those not receiving counseling. The finding is consistent across years of origin, even as the mortgage market changed, and it applies equally to first-time homebuyers and repeat buyers. The analysis uses two methods to avoid a common pitfall of such studies: selection bias. It employs propensity scoring to reduce the differences between counseled and noncounseled samples and includes many variables available from credit-reporter Experian to measure borrowers’ credit attitude and approach that would usually be unobservable. The effect of counseling remains strong after selection bias is limited, reducing the likelihood that borrowers get into trouble through deceptive practices and other means.
Previous Article | Next Article