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. Postpurchase 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. The federal government funds homeownership counseling through a  number of programs at HUD, Treasury, the Department of Defense, and  the Department of Veterans Affairs. 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. However, findings on prepurchase counseling are less clear. 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. Additional empirical research on the impact of housing counseling is  under way at HUD and Fannie Mae. We did not identify any published studies that evaluated  homeownership counseling using an experimental design. Establishing meaningful measures of the impact of homeownership  counseling programs is also a significant challenge. 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. 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. 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. 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. Troubled Asset Relief Program: Treasury Actions Needed to Make the  Home Affordable Modification Program More Transparent and  Accountable.
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.

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 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.

What GAO Recommends

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.