Does Foreclosure Prevention Counseling Work?

Abstract

The United States experienced its worst housing market collapse since the Great Depression during 2006–2010. This collapse triggered the Great Recession. During the housing market collapse and the Great Recession, about 5.5 million homeowners in the United States lost their homes to foreclosure. In this article, we present findings about the effectiveness of foreclosure prevention counseling. Although many recent studies have examined this issue, almost all have major methodological shortcomings that render their findings less useful for policymakers than they could have been. Using data from a national sample and employing a before–after research design with pre- and postcounseling data for several months, our study avoids the pitfalls of other recent works. We find that counseling is effective in preventing foreclosure for about 39% of homeowners counseled. We identify a few factors that correlate with a positive postcounseling outcome. The findings of this study could improve ongoing foreclosure counseling programs, and thereby assist in stabilizing and reviving the U.S. housing market. Our findings could also improve the design of future foreclosure counseling programs.