Borrowers who complete homeownership education programs make better refinancing decisions

May 12, 2008

In light of the subprime mortgage crisis that has resulted in extraordinarily high default rates on home mortgages, one might wonder what the government can do to better educate new potential homeowners.

A recently published article appearing in the Journal of Policy Analysis and Management found that borrowers who complete homeownership education and counseling (HEC) programs are more informed about when to make refinancing decisions. The effectiveness of education and counseling varies by the type of program.

Researchers surveyed low-income homeowners who purchased a home between 1999 and 2003. They then observed loan performance through the first quarter of 2006, a period of strong growth in home values and steady decreases in interest rates.

Homeowners had completed a variety of different types of homeownership education and counseling from multiple providers across the United States. The type and quality of these programs greatly varied, ranging from intensive classroom-based instruction with individualized attention, to telephone-based counseling, and home study.

Borrowers who completed the HEC programs were more responsive to the financial incentive to refinance than other borrowers. Specifically, borrowers who participated were more likely to refinance when they could lower their interest rates and by doing so, less likely to refinance during periods when it was not financially beneficial.

The study also found that the impact of education and counseling programs is specific to programs that include classroom-based instruction and/or individual counseling. Programs based on home study or telephone counseling did not show similar impacts.

Source: Wiley

Explore further: Will rapprochement mean new research collaborations between Cuba and the U.S.?

add to favorites email to friend print save as pdf

Related Stories

Researcher studies interactions between land and water

Nov 26, 2014

Early one morning last January, MIT undergraduate Theresa Oehmke was eating breakfast at the Kilauea Military Camp on Hawaii's Big Island when a colleague burst into the room, yelling, "Oh my god, the plume, ...

Decoding ethnic labels

Jul 30, 2014

If you are of Latin American descent, do you call yourself Chicano? Latino? Hispanic?

Body by smartphone

Jul 30, 2014

We love our smartphones. Since they marched out of the corporate world and into the hands of consumers about 10 years ago, we've relied more and more on our iPhone and Android devices to organize our schedules, ...

Recommended for you

Study: Alcatraz inmates could have survived escape

Dec 17, 2014

The three prisoners who escaped from Alcatraz in one of the most famous and elaborate prison breaks in U.S. history could have survived and made it to land, scientists concluded in a recent study.

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

Sophos
not rated yet May 13, 2008
Wow, go figure, low income people need
to be taught about managing money!

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.