The Consumer Financial Protection Bureau (CFPB) has an opportunity to dramatically increase the amount of data on the availability and effectiveness of homeownership counseling. As discussed previously in this column, the CFPB is required to improve the publicly available data on home lending per the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Manna, of course, is biased about the effectiveness of homeownership counseling. On an annual basis, Manna provides homeownership counseling to about 250 clients, most of whom receive both one-on-one counseling and participate in peer group sessions in our Homebuyer Club chapters. During 2014, 87 clients improved their credit scores, 14 purchased homes, and another 14 are in the final stages of purchasing their homes.
Manna’s biases aside, rigorous research has demonstrated the effectiveness of counseling. In a study assessing the effectiveness of counseling conducted by the NeighborWorks counseling network, clients who had received pre-purchase counseling were one-third less likely to become seriously delinquent on their loans than borrowers who did not receive counseling .In addition, a study conducted by the Federal Reserve Bank of Philadelphia in 2014 found that clients receiving group counseling and one-on-one counseling experienced greater improvements in their credit scores and were less likely to become delinquent on their loans than borrowers who did not receive counseling.
Given these beneficial impacts of counseling, it behooves federal agencies such as the CFPB to improve publicly available data on the extent and effectiveness of counseling. The current research relies on labor intensive surveys that cover only certain localities and time periods. In contrast, the CFPB could require the collection of counseling data on an annual basis, across the country, and as detailed as the census tract level. The idea would be to add data on counseling to HMDA data. HMDA data is collected annually by the Federal government and includes data on lending by demographics of the borrower and characteristics of the loan such as purpose and type. The HMDA data is reported on the census tract level.
Adding data on counseling would be a powerful enhancement to the HMDA. First, it would be possible to know whether counseling was effectively reaching traditionally underserved communities such as neighborhoods east of the Anacostia River. Data would be available on the race, gender, and income of the counseling recipients. Second, Manna agrees with the recommendations of the National Housing Resource Center regarding types of data to report on counseling. It would be desirable to collect data on the extent of counseling (whether it is intensive preparation to qualify for a loan or more along the lines of education sessions) and the mode of counseling (phone, on-line, and in-person).
Combined with other pending improvements to HMDA data, data on counseling would be quite helpful in evaluating counseling. For example, were borrowers receiving counseling less likely to receive loans with abusive terms and conditions? If so, does the likelihood of receiving responsible loans increase with a certain type of counseling (in-person as opposed to on-line)? In the future, HMDA data may also be combined with data on loan performance on a census tract level. We may be able to determine if foreclosure rates are systematically lower in census tracts in which a higher percentage of borrowers received counseling.
How would this data be collected? Nothing is simple in data collection, but the hope is that this would be straightforward. Borrowers could bring counseling certificates to lenders. The certificates could also include a standard form indicating the type and model of counseling.
What is the likelihood that counseling data will be added to the HMDA data? The CFPB did not propose including counseling data in HMDA data. However, Manna and other community-based organizations have suggested that counseling be included in the data. It is expected that the CFPB will be finalizing its proposed enhancements to HMDA data this year. We hope that the CFPB sees the virtue of including some counseling elements in the data. But if not, all hope is not lost. The agency will most likely be periodically considering revisions to the data. Manna will keep pushing, which will increase the likelihood of counseling being added to the data.
Josh Silver is the Development Manager at Manna, Inc. Prior to his time at Manna, Josh served as the vice president of research & policy at NCRC. Josh is an avid District sports fan and loves spending time with his daughter