First-time homebuyers who attended the Tennessee Housing Development Agency’s homebuyer education course were much less likely to lose their home to foreclosure, according to a new Vanderbilt study.
Scott Brown, a doctoral student at Vanderbilt’s Peabody College of education and Human Development, analyzed and compared two groups of 2002 homebuyers: those who took the THDA’s homebuyer education (HBE) class and those who did not.
He found that the odds of foreclosure were 42 percent lower among participants in THDA’s down payment assistance program who completed an HBE class compared to participants who did not.
THDA began offering down payment assistance as part of its home loan program in January 2002 but did not start enforcing a requirement to attend an HBE class until July of that year. Brown compared the two sets of otherwise identical homebuyers: down payment assistance recipients from the first half of the year who did not take an HBE class and those from the second half of the year who were required to take HBE.
“This is one of the first studies on the effectiveness of homebuyer education to provide evidence similar to an experiment with a control group,” said Brown. “This is very helpful from a scientific perspective because it largely controls for factors other than homebuyer education when comparing one group to the other.”
“Because foreclosures are expensive and disruptive to the borrower, the loan holder and the mortgage guarantor, an HBE class may be a low-cost approach to preventing foreclosures from occurring,” he said.
Brown cites research indicating low-income first-time homebuyers often face significant unplanned home repairs or major increases in utility costs, property taxes, or homeowner’s insurance within the first two years of ownership. When facing these or other hardships, homeowners who completed HBE appeared to be significantly better prepared to recover and become current on their payments once again.
Among borrowers defaulting for the first time, Brown found the odds of foreclosure were reduced by 55 percent among those who took HBE compared to those who did not.
The study also shows that among borrowers who defaulted, HBE was associated with both an increased probability of becoming current on payments again and of avoiding a later foreclosure.
The complete study was recently published in the prestigious Journal of Policy Analysis and Management and is available online.
Brown is slated to complete is doctoral degree in Peabody’s Community Research and Action program in 2017. He served as an intern in the Research & Planning division of THDA in 2009.