Bankruptcy

Does Anybody Know If Credit or Foreclosure Counseling Helps?

By David Lander

The infusion of millions of dollars to pay "counselors" to forestall foreclosures on behalf of consumers who are delinquent on their mortgage payments seems as American as apple pie and should perhaps help some homeowners. These dollars are split among neighborhood non profits, specialized housing counseling organizations and a considerable amount has flowed to providers that have historically spent most of their time counseling consumers with credit card delinquencies. A group of United Way supported family and children service agencies also receive some of these funds.

Anecdotal reports indicate that the housing counselors are a cut above the historic credit card counselors. The credit card counseling industry agencies were mostly begun by creditors and their funding has always been supported by payments from creditors. The housing counseling organizations began with funds from HUD and the Ford Foundation and the extensive new dollars have come from the Federal government through a central organization called Neighbor Works. The neighborhood organizations obtain their funding all over the lot. The cultures of the various organizations differ a good deal among themselves and between the various types of providers.

Over the years there have been very few professional evaluations of the work these folks do and the evaluations that exist are subject to a great deal of criticism. For better and worse the inflow of new dollars has not spawned more professionally accepted evaluations. The good news is that the money keeps flowing, particularly into the housing and foreclosure sector; the bad news is that we have no idea whether some agencies could learn from others and very little idea of how well the ?counselors? are doing their jobs and how much they are helping. This industry works with folks AFTER they are in financial trouble, but the ?financial literacy? movement which  tries to help folks BEFORE they are in financial trouble is subject to the same lack of evaluation and even reflection. 

Perhaps, this void of effective evaluation is inevitable since we are not sure what we want from these providers. We want the foreclosure counselors to understand the rules for stopping a foreclosure and to use those rules for the maximum benefit of the homeowner. For years clients of credit card debt counseling agencies had access to concessions from lenders that were either unavailable or more difficult to access without the intercession of the agency. The effectiveness in accessing those concessions was a major goal of credit card debt counseling. More recently the goal of pre bankruptcy filing briefings was to avoid filing bankruptcy and the goal of post bankruptcy education was to keep people from needing to file another bankruptcy.   

We want these ?counselors? to teach the consumers the basic facts of borrowing and using credit so that they will be more well informed. Hard to argue with that notion. There is no proof anywhere that any of these educational programs before or after default change the behavior of the consumers. For the past couple of decades there has been considerable debate about whether the increased consumer spending and borrowing was based on survival or on purchasing luxuries, but the dismal state of the economy has stepped in to reduce that spending and borrowing (and lending). In the past few years the behavioral economists and the savings movement have made progress and some important discoveries. We now know that if we create programs under which the non default conduct is enforced savings, and the consumer must opt out of that program not to save, then more saving occurs. If  the nondefault option in retirement programs is ?wiser? investments and the consumer must opt our of that program to make other, less ?wise? investments, then the result is ?wiser? investments. Likewise we understand that human nature causes us to eat now and diet later and we really intend in our heart of hearts to diet later; same is true with smoking and drinking and gambling and SPENDING AND USING CREDIT. Our thought process influences us to believe we will  make changes in actions that are further off in the future. 

So, before we evaluate post trouble counseling or pre trouble financial literacy education we need to agree on the goals. Is the goal a better credit rating, or is it more saving; is it a change in behavior or a higher score on a test? Once we obtain some consensus then we need to develop measurement tools and apply them and perhaps we will be able to do so.

If such evaluations demonstrate that housing counselors ?help? consumers more than credit card counselors help them, then we will want to investigate why. Is it the culture of the counselor?s employer or the funding or the fact that housing counselors are paid more or have better credentials. Is there a culture of quality in certain types of providers and not in others? Is there a culture of human service in some types of providers and not in others? If the culture of quality and human service seem to help then how do we instill that culture in more of the providers?
 

Full post as published by Credit Slips on April 28, 2009 (boomark / email).