The Benefits of Pre-Purchase Homeownership Counseling 1

Our paper provides an empirical assessment of the effectiveness of pre-purchase homeownership counseling in reducing 90-day delinquency rates. We use data on nearly 38,000 fixed-rate, purchase money mortgages originated under Freddie Mac’s affordable lending programs between the years 2000 and 2008. We take efforts to control for the quasiexperimental nature of our data, as well as the heterogeneous experience of borrowers postorigination. We find that counseling reduces the delinquency rate of first-time home buyers by 29 percent, that counseling’s effectiveness is largely insensitive to its method of delivery, and that its effectiveness was greatest in the boom/crisis years of 2005 through 2008. We estimate the dollar benefit of counseling’s reduction in delinquency rates to be about $1,000, easily sufficient to pay for its delivery.