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Cityscape: Volume 18 Number 2 | Prepurchase Counseling Effects on Mortgage Performance: Empirical Analysis of NeighborWorks® America’s Experience


The goal of Cityscape is to bring high-quality original research on housing and community development issues to scholars, government officials, and practitioners. Cityscape is open to all relevant disciplines, including architecture, consumer research, demography, economics, engineering, ethnography, finance, geography, law, planning, political science, public policy, regional science, sociology, statistics, and urban studies.

Cityscape is published three times a year by the Office of Policy Development and Research (PD&R) of the U.S. Department of Housing and Urban Development.

Borrower Beware

Volume 18, Number 2

Mark D. Shroder

Michelle P. Matuga

Prepurchase Counseling Effects on Mortgage Performance: Empirical Analysis of NeighborWorks® America’s Experience

Neil S. Mayer
Neil Mayer & Associates

Kenneth Temkin
Temkin 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.

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