Tag Archives: meta-analysis

Armed, Unarmed or Harmed by Knowledge?

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I posted Armed, Unarmed or Harmed by Knowledge? A Comment on the FHA’s Housing Counseling Pilot Program to SSRN (and to BePress). The abstract reads,

The FHA has requested input on its Homeowners Armed with Knowledge (HAWK) for New Homebuyers pilot program. This comment letter argues that housing counseling is not a proven solution to the problem it is meant to solve, excessive defaults by FHA borrowers. HAWK is a traditional housing counseling program but the scholarly literature casts into doubt the efficacy of such programs. It would be better to take time to research which counseling strategies, if any, are proven to be effective. This is true for the FHA but also for other government agencies, such as the Consumer Financial Protection Bureau, that have devoted significant resources to unproven financial counseling programs.

This comment was submitted to the FHA in response to its request for input on its Homeowners Armed with Knowledge (HAWK) for New Homebuyers program.

Regular readers of this blog will be familiar with my take on this topic as the comment is adapted from blog posts that have addressed various financial education topics.

Input on Housing Counseling

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HUD has issued a Notice, Federal Housing Administration (FHA): Homeowners Armed With Knowledge (HAWK) for New Homebuyers (Docket No. FR-5786-N-01).

HAWK is a pilot that will

provide FHA insurance pricing incentives to first-time homebuyers who participate in housing counseling and education that covers how to evaluate housing affordability and mortgage alternatives, to better manage their finances, and to understand the rights and responsibilities of homeownership. The goals of the HAWK for New Homebuyers pilot (HAWK Pilot) are to test and evaluate program designs that meet these objectives:

•To improve the loan performance of participants and reduce claims paid by FHA’s Mutual Mortgage Insurance Fund (MMIF).

• To expand the number of families who improve their budgeting skills and housing decisions through access to HUD-approved housing counseling agency services; and

• To increase access to sustainable home mortgages for homebuyers underserved by the current market. (27896)

I have already noted that HAWK is based upon some pretty sketchy research about the efficacy of housing counseling. The Notice presents additional research (in footnotes 5-8) that supports its goals, but I have to say that it seems cherry picked to me. The notice says, for instance, “some studies show” and “Several major studies have recently noted a correlation . . ..” But the Notice does not seem to contextualize these studies at all. A meta-analysis (see here too) of financial education initiatives is decidedly less optimistic.

It seems that the FHA and the CFPB have gone whole hog on counseling even though the evidence is not there to support such strong support. On the bright side, HAWK is a pilot program and the FHA will evaluate it to see whether it meets its goal of “improving loan performance.” (27903) I am just worried a bit worried though, because the FHA’s materials seem to show an unwarranted bias toward counseling that a review of the relevant literature does not seem to bear out.

The HAWK Notice requests comments by July 14, 2014, so you’d better act fast if you have something to say!

Can You Help Someone Become Financially Capable?

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Researchers at the World Bank have posted Can You Help Someone Become Financially Capable? A Meta-Analysis of the Literature.The abstract reads,

This paper presents a systematic and comprehensive meta-analysis of the literature on financial education interventions.  The analysis focuses on financial education studies designed to strengthen the financial knowledge and behaviors of consumers. The analysis identifies188 papers and articles that present impact results of interventions designed to increase consumers’ financial knowledge (financial literacy) or skills, attitudes, and behaviors (financial capability). These papers are diverse across a number of dimensions, including objectives of the  program intervention, expected outcomes, intensity and duration of the intervention, delivery channel used, and type of population targeted. However, there are a few key outcome indicators where a subset of papers are comparable, including those that address savings behavior, defaults on loans, and financial skills, such as record keeping. The results from the meta analysis indicate that financial literacy and capability interventions can have a positive impact in some areas (increasing savings and promoting financial skills such a record keeping) but not in others (credit default).

I hope that policy makers at the CFPB have reviewed this paper carefully. The Bureau has a financial education mission that must be built on solid research if it hopes to improve outcomes for consumers. A lot of the scholarly work in this area has questioned the efficacy of financial education, but the Bureau seems to be going full speed ahead with it. The Bureau should bore down into the literature to determine which types of interventions are effective before allocating funds indiscriminately to new initiatives.

I am particularly concerned about the last sentence of the abstract which indicates that interventions have failed to improve consumer behavior when it comes to credit default. That seems to be a big problem for any financial skills initiative. Further research should focus on alternative interventions that might be effective in reducing credit default by consumers. And funds should not be wasted in the interim on unproven initiatives in this area.