For the past three decades home-ownership counseling has been an integral part of affordable lending in the United States. Counseling’s popularity has been based in large part on the belief that borrowers receiving counseling are better able to handle the responsibilities of home-ownership. To this point, however, there has been no convincing empirical evidence to support this view.

This study uses data on almost 40 thousand mortgages originated under Freddie Mac’s Affordable Gold program to pose three questions; does pre-purchase home-ownership counseling demonstrably reduce 90-day delinquency rates, do the different types of pre-purchase home-ownership counseling programs vary in their effectiveness at reducing delinquency rates, and are any counseling providers more or less effective in administering their programs.

It is thought that counseling can be effective in reducing mortgage delinquency. Borrowers receiving counseling in our data have, on average, a 19 percent lower 90-day delinquency rate. We find, moreover, that different counseling programs vary in their effectiveness. In particular, borrowers receiving counseling through individual programs experience a 34 percent reduction in delinquency rates, all things equal, while borrowers receiving classroom and home study counseling obtain 26 percent and 21 percent reductions, respectively. We find no evidence that telephone counseling mitigates credit risk. Nor, after controlling for the mix of counseling programs do we find that counseling providers vary in their effectiveness in reducing delinquency rates.