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Evaluating an Outcomes-based Standardized Homeownership Education Program Cheryl L. Eschbach, Robert Weber, Erica Tobe, Lauren Hale, and Vivian Washington Michigan State University Extension

A statewide education program provided prospective homebuyers with information to support long-term preservation of affordable homeownership. Between 2012 and 2015, a sample of 1,561 Michigan residents completed pre- and post program evaluation surveys. The surveys measured 12 outcomes of the homeownership education program. Change scores were calculated for participants, and paired t-tests were used to compare pre- and postsurvey means for each of the 12 outcome measures. The results of both change scores and t-tests showed that homeownership education increased the participants’ knowledge of financial requirements for buying a home and practices to prevent predatory lending and foreclosure. The financial practices in which the largest percentage of participants reported an intention to change were as follows: tracking spending, creating a budget, calculating a reasonable housing payment, identifying patterns to adjust, and developing a plan to change financial habits. Keywords: consumer behavior; financial habits; foreclosure; homebuyer education; program evaluation

Homeownership is an American dream and it is the foundation of healthy community development. Unbiased education can empower individuals and families to avoid predatory lenders, increase overall financial health, and stabilize neighborhoods and property values (Carswell, James, & Mimura, 2009). Prospective homebuyers face many decisions when considering the purchase of a home. The uncertain economy makes it challenging to trust current employability, income level, and inflation rates. Many average Americans lack financial security because of insufficient savings, debt obligations, and spending habits. Additionally, the U.S. housing market has been uncertain. Foreclosure has social and economic side effects on communities including abandoned housing, a decline in neighborhood property values, and an increase in the cost of city services (Turner, 2008). Foreclosure rates should motivate potential homebuyers to select and use financial products wisely and to select the options that minimize personal risks and maximize benefits (Moulton, Loibl, Samak, & Collins, 2013). Authors’ Note: Cheryl L. Eschbach, PhD, is an Extension Specialist in the Program Evaluation at Michigan State University Extension. Robert Weber, MS, is a Financial and Homeownership Educator at Michigan State University Extension. Erica Tobe, PhD, is an Extension Specialist in the Financial and Homeownership Education at Michigan State University Extension. Lauren Hale, BS, is a Data Integrity Specialist in the Financial and Homeownership at Michigan State University Extension. Vivian Washington, MS, is a Financial and Homeownership Educator at Michigan State University Extension. Please address correspondence to Dr, Cheryl L. Eschbach, Michigan State University Extension, Agriculture Hall, 446 West Circle Drive, Room 11, East Lansing, MI 48858; e-mail: [email protected]. Family and Consumer Sciences Research Journal, Vol. 45, No. 2, December 2016 138–149 DOI: 10.1111/fcsr.12189 © 2016 American Association of Family and Consumer Sciences 138

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When individuals and families are financially healthy, the environment can help support sustained community prosperity. However, many families in Michigan have found it difficult to spend less than they earn and to sustain daily living. One reason has been the loss of stable employment. The unemployment rate for Michigan was in double digits from December 2008 to October 2011 (with a peak of 14.9% unemployment in June 2009). At present, the unemployment rate is close to the national average of about 5% (Bureau of Labor Statistics, 2016). Other factors that impede household financial health include decreased income from underemployment, increased mortgage or rent costs, rising and variable food prices, and lack of affordable credit. As recently as 2013, Michigan was in the top ten states facing housing foreclosures (RealtyTrac, 2016). Foreclosure starts increased 6% in Michigan from 2013 to 2014. Foreclosure start filings include default notices, auction sale notices, and bank repossessions. Michigan homeownership rates declined from 71.7% in 2000 to 69.2% in 2010 for homeowners under age 65 (RealtyTrac, 2016). This decline reflects the difficulty of purchasing or keeping a home under recent economic conditions. Affordability issues put new and existing homeowners at risk of financial stress and potentially poor outcomes. Affordability concerns arise when a household is cost-burdened, meaning that 30% of monthly gross income is dedicated to housing costs. Another common situation is asset poverty which means that a household could not afford basic home costs for 3 months if income stopped. A recent nationwide scorecard ranked Michigan’s outcomes as 28th in the nation; 27% of Michigan homeowners (31% nationally) and 52% of Michigan renters (52% nationally) were cost-burdened and 25% of households in the state (25% nationally) had asset poverty (CFED, 2016). Homebuyers make decisions that require them to determine their personal financial situation and to learn what financial products are available. Research suggests that individuals may not accurately estimate their own financial status including their information about debt and creditworthiness, and this can lead to undesirable financial decisions (Moulton et al., 2013). Prepurchase homeownership education programs can provide important information and teach prospective homebuyers financial decision-making skills.

PURPOSE

The Cooperative Extension Service can play an important role in addressing financial health issues of individuals and families through community-based, educational programs. Michigan State University (MSU) Extension implemented homeownership education to address the rising foreclosure crisis (Turner, 2008). Statewide homeownership education is one mechanism to reduce foreclosures in Michigan. The goal of the homeownership education programs is to help consumers become aware of their personal financial profile and to obtain, maintain, and retain affordable housing which in turn supports healthy neighborhoods and communities. The two most typical methods of delivering information are through counseling and education. Counseling is a one-on-one service that is customized to participant needs, while education is intended to provide general information and skill building and it is usually delivered to groups. Cooperative Extension

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FAMILY AND CONSUMER SCIENCES RESEARCH JOURNAL

in Michigan provides both counseling and education. The counseling program is focused on foreclosure intervention efforts for current homeowners and the educational program is intended for participants who want to become homeowners. The use of current, relevant, and research-based information has positioned Cooperative Extension as the leading agency offering homeownership education in the state. The purpose of this study was to present the outcomes of a standardized homeownership education program. The outcomes should indicate whether the prospective homebuyers were able to increase their knowledge and skills to make positive changes in their financial behavior. Using data collected from the Michigan State University Extension homeownership education presurvey and postsurvey evaluations, the study addressed the following research questions: 1 What were the demographic characteristics of participants who sought homeownership education from MSU Extension? 2 What changes in knowledge and awareness were identified by program participants as a result of the homeownership education program?

REVIEW OF LITERATURE

Homeownership education is relatively commonplace in the United States although there is little standardization on program content. Carswell (2009) traced the development of homeownership counseling programs to the Housing and Urban Development (HUD) Act of 1968. Early programs (in the 1970s and 1980s) focused on low- and moderate-income individuals and postpurchase mortgage default interventions. More recently, homeownership counseling has changed to a focus on prepurchase education and helping households enter into low-risk, long-term ownership arrangements (Quercia & Wachter, 1996). Research shows that prepurchase counseling is effective in reaching both the goal of purchasing a home and preventing future default or foreclosure (Turnham & Jefferson, 2012; Turnham, Spader, Jefferson, & Moulton, 2012). However, there is little research on the effectiveness of homeownership education. However, the lack of control groups in the study of consumer financial behavior should not hinder attempts to understand program effectiveness (Carswell, 2009). Finding peer-reviewed research on the effectiveness of homeownership education programs is difficult because financial service industries tend to selffund studies of their financial products and the subsequent consumer outcomes. Many of the existing studies on prepurchase counseling and homeowner education effectiveness are presented online as industry reports published by financial institutions. This means that the outcomes are likely to reflect the interest of lenders who often measure success of a program as a home purchase and consistency in mortgage payments (Carswell et al., 2009). In contrast, financial education should include preparing individuals to change specific behaviors and the program evaluation assessments should include the measurement of specific financial behaviors (Shockey & Seiling, 2004). There is evidence that prepurchase homeownership education can benefit individuals in a variety of ways. Education has been linked to improved daily


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financial behavior such as debt management and changes in personal spending and saving habits (Shockey & Seiling, 2004; Xiao et al., 2004). Homeownership education has the potential to improve an individual’s creditworthiness, reduce the likelihood of mortgage delinquency, increase the knowledge of the homebuying process, and improve budgeting behavior. For example, the Community Development Studies and Education Department of the Federal Reserve Bank of Philadelphia found that a prepurchase homeownership workshop and one-on-one prepurchase counseling improved the participants’ financial creditworthiness as they prepared to qualify for a home mortgage (Smith, 2014). A study of almost 40,000 mortgages originated under Freddie Mac’s Affordable Gold program investigated the claim that prepurchase homeownership counseling programs lowered mortgage delinquency rates. The results showed that borrowers receiving classroom counseling had a 26% lower rate of 90-day delinquencies (Hirad & Zorn, 2001). The University of Georgia, in partnership with Wachovia Bank, conducted a study of first-time homebuyer programs and found evidence of educational effectiveness and the impact it had on increasing participants’ effective budgeting behavior and consumers’ knowledge, irrespective of applicants’ “gender, race, age, educational level, or income category” (Shelton & Hill, 1995, p. 87). More recently, prepurchase and foreclosure counseling studies found that consumers need help negotiating with lenders and they need trained counselors to help them find remedies (Turnham & Jefferson, 2012; Turnham et al., 2012). Instruction delivered through telephone and in-person were equally effective strategies; providing both forms of assistance could expand program outreach in audience and geographic areas (Turnham & Jefferson, 2012). Homeowners need healthy financial habits to retain affordable homes longterm. Stable homeownership is important to the sustainability and prosperity of communities. Prepurchase homeownership education programs can reduce mortgage defaults and increase the likelihood of long-term asset preservation (Hirad & Zorn, 2001). Furthermore, homeownership can result in family stability with less transiency and greater residential satisfaction that tends to foster community ties, social capital, and stability of neighborhoods (Carswell et al., 2009). Education can support individuals in long-term preservation of affordable homeownership when they are committed to tracking spending patterns, creating a household budget, calculating a reasonable housing payment, periodically reviewing consumer credit reports, identifying spending patterns that might need to be adjusted, and developing a plan to change financial habits.

METHODOLOGY

The homeownership education program in Michigan targets residents with lowto-moderate income, young adults, first-time homebuyers, and homeowners recovering from foreclosure. With state funding support, programs are open to everyone in community-based settings and also programs are offered online. The program evaluation design used in this study was intended to capture standardized outcomes from diverse audiences across several years during an economic recession in the state.

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Homeownership Education Program Description

MSU Extension’s homeownership education program was designed using information from three Department of Housing and Urban Development (HUD)approved agencies: NeighborWorksâ America, the Michigan State Housing Development Authority (MSHDA), and eHome America. Also, the program implemented educational tools from the Consumer Financial Protection Bureau. Using a combination of these resources allowed the homeownership education program to present current information. In fact, the homeownership education program is updated regularly with the most recent industry standards to maintain a high level of reliability and sense of responsibility to the community. The curriculum has four units: (a) advantages of homeownership and steps in the homebuying process, (b) understanding the costs of homeownership and how to maintain the investment, (c) mortgage loan basics and why good credit is important, and (d) how to determine how much house a family can afford. After receiving Institutional Review Board permission for the study, the homeownership education program was presented and evaluated and results are reported in this article. The education program is delivered either through in-person, group classes or through an online setting. The in-person homeownership education program is 6 hr in length, free of charge, and facilitated by one or more MSU Extension educators who are certified housing practitioners through the NeighborWorksâ Center for Homeownership Education and Counseling (NCHEC). Similar to The Ohio State University Extension’s program (Loibl, 2014), MSU Extension’s classes offer some homebuyers down payment and closing cost assistance through a partnership with the state housing agency. Participants must attend the entire program to receive a certificate of completion which is required for Down Payment Assistance. The online course, eHome America, costs $99 and takes 6–8 hr to complete. The online program extends accessibility to an audience unable to wait for an in-person workshop offered in their geographic area. Also, it makes the program available to those who are disabled or otherwise homebound. Upon completion, the participant(s) must contact MSU Extension’s online state administrator (also a certified housing practitioner) to review the course and address any questions. Then, the MSU Extension educator sends the certificate of completion. Content in the online course, eHome America, and in MSU Extension’s inperson class is nearly the same. The only difference is that eHome America does not include specific down payment assistance information because that is localized. However, participants are educated on local information and support during their follow-up 1-hr call with a MSU Extension practitioner. The 1-hr contact which is provided to online participants is general and not specific to case information like income verification which is provided during counseling situations. In-person workshops vary slightly based on questions that other participants ask during class. However, online participants have one-on-one time with a housing practitioner. In addition, the in-person homeownership education programs might host guest speakers that could include local realtors, lending professionals, and home inspectors to provide additional local context and perspective into the homebuying process. This additional content provides expert and insider testimonies to enrich the learning experience and cultivate a greater sense of comfort and confidence when approaching professionals. If


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invited, guest speakers must use preapproved slides and they are instructed to educate, not to sell. Sample

Approximately 700 participants receive homeownership education each year from MSU Extension. Between January 2012 and June 2015, MSU Extension had 2,433 adult participants complete the homeownership education program. As shown in this study, 64% of participants provided pre- and postsurvey evaluations which resulted in a sample of 1,561 participants with outcome data. Online participants represented 10% of the study sample (n = 156). Participants are referred to the educational program from lenders who participate in the MSHDA Down Payment Assistance program and community partners such as realtors. Participants are recruited through social media and print brochures placed at municipal offices, libraries, and community resource fairs. In-person class sizes vary. A class of 30 participants might represent 5–10 referrals from lenders and agencies and include people at different stages of the homebuying process. Older family members sometimes attend workshops with younger individuals who are first-time purchasers to coqualify for financial products. Program Evaluation Design

Homeownership education program participants completed a standardized set of evaluation instruments including a demographic form, presurvey, and postsurvey. Survey responses were collected confidentially to protect participant privacy. Participants were not required to complete evaluations for certifications and all replies were voluntary. If a couple or family members were attending the program together, both participants completed a survey on their individual awareness, attitudes, and financial behavior. Demographic forms were administered at the beginning of the program with the presurvey. The postsurvey was completed at the end of program. Variables

The 14 demographic characteristics included age, gender, relationship status, number of household residents, county residence, zip code, annual income, highest level of education, veteran status, work status, current housing situation, and ethnicity/race. Also, participants were asked whether they planned to buy a home in the next 3 years and whether they had ever experienced foreclosure. Participants’ age was measured as a continuous variable. The categories for relationship status included the following: married, divorced, widowed, single, and unmarried couple. A variable was created to make two types of participants: couples or singles. The number of household residents included the total number residing in the home including the participant. Annual income was recorded in five categories based on HUD guidelines. Education was the highest grade level of the participant which could be grade school, high school graduate, some college, associate’s degree, bachelor’s degree, and professional graduate degree. Participants reported current work status as follows: full-time or part-time, temporary, or whether they were unemployed,

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retired, or other. Current housing situation indicated whether the participant owned a home, was a renter, was homeless, or lived with family. Ethnicity and race included Hispanic or Latino, American Indian or Alaskan Native, Asian, Black or African American, Native Hawaiian or other Pacific Islander, White or Caucasian, and multiracial. Participants indicated whether they had ever experienced foreclosure in the past and whether they planned to buy a home in the next 3 years by answering yes or no to these questions. The program objectives and evaluation survey content were based on suggestions of financial practices from the National Endowment for Financial Education Evaluation Toolkit. The pre- and post survey format was chosen because it allows for immediate documentation of short-term outcomes of homeownership education programs. Each survey question pertained to a specific financial behavior or financial practice which related to the 12 financial practices in the homeownership education program objectives. Program outcomes are listed in Table 1 in the order they appeared on the survey (see Table 1). At the beginning and at the end of the program, participants rated their frequency of behavior in regard to the 12 financial practices, using a 5-point Likert scale (1 = I am not considering this, 2 = I am considering this, 3 = I am doing this sometimes, 4 = I am doing this most of the time, 5 = I am doing this all of the time). This measurement was similar to the five scoring levels used in measuring financial management education (i.e., not currently doing, have tried, plan to implement, have been doing, been doing 6 or more months) that measured six money management behaviors with a 5-point scale (Shockey & Seiling, 2004). The program objectives and logic model specified that as a result of educational content aligned with appropriate delivery methods (workshops and online), participants who completed the program would self-report increased frequency of the targeted financial behavior. This study reported the following: (a) the percentage of individuals who experienced a change in knowledge and skills as a result of what they learned and (b) the group means over time. Calculating Scores to Measure Intention to Change

A change score was calculated on each survey item by subtracting the presurvey rating from the postsurvey rating. Change scores were then recoded TABLE 1:

Program Outcomes Measured Pre- and Post-Homeownership Education (n = 1,561)

Survey Statement 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Make changes, as needed, to improve credit report and score Save money to prepare for homeownership Get a home inspected by a reputable firm Periodically shop around for the best home insurance coverage for you Identify the best type of mortgage for your needs Identify down payment, closing requirements for each type of mortgage loan Select a realtor to be your buyer’s agent Review closing disclosure to ensure fees are similar to the loan estimate Calculate reasonable monthly housing costs based on your budget Pay mortgage on time every month

NOTE: Item order based on appearance in the survey.


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as change or no change based on whether change occurred in the intended direction of the outcome indicator. For example, if a participant noted on the presurvey that they were not considering making changes to improve their credit report and score, but the participant indicated they were considering this on the postsurvey, the calculated change score would be 1 and it would be coded as “changed.” If a pre- and postsurvey had the same rating, for example, a 4 on the presurvey and a 4 on the postsurvey (doing most of the time), then the change score was calculated as zero and recoded as “no change.”

RESULTS Descriptive Statistics

The average age of participants was 37 years with a range of 18–93 years. Race and ethnicity included: 55% Caucasian/White, 36% African American/Black, 4% multiracial, 2% Hispanic/Latino, 2% Asian, and less than 1% American Indian or Native Hawaiian. Some participants did not wish to provide race and ethnicity information; therefore, 5% had missing data. Women represented 62% of participants. Relationship status had 46% representing a couple, and 54% were single individuals. Thirty-seven participants self-reported as veterans. The average household size was 2.68 with a range of 1 to 11 people with 2% missing data. Current housing status showed that 73% were renters; 3% had missing data for housing status. Eleven percent (11%) of participants were currently facing or had experienced foreclosure in the past. Nearly all (97%) participants planned to buy a home within the next 3 years. Participants varied on annual income, education, and current work status. In program year 2013, questions on veteran status, current work status, current housing situation, plans to buy a home, and foreclosure experience were added. See Table 2 for the demographic statistics. Measuring Knowledge and Awareness Outcomes

According to the calculations on whether individuals had changed behavior, the results showed that there were improved outcomes on all 12 financial practices. Change percentages ranged from 26% to 53%. The top four financial practices indicated that change would take place included: 53% understood predatory lending practices; 53% knew how to review closing disclosure to ensure that fees were similar to the loan estimate; 48% learned to identify down payment and closing requirements for each type of mortgage estimate, and 48% could identify the best type of mortgage for their needs. The column in Table 3 showing “Percent changed” indicates the change scores which were explained in the preceding paragraph. In addition to calculating the change scores, the means for the pre- and postsurveys were compared using t-tests (see Table 3). Paired t-tests (dependent, matched samples) compared pre- and postsurvey means for each of the 12 program outcomes. All results were significant at p < .001. The test of significance between means established evidence for program effectiveness.

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FAMILY AND CONSUMER SCIENCES RESEARCH JOURNAL Demographics of Prospective Homebuyers in Educational Program (n = 1,561)

Variables Age 28 years and younger 29 to 34 years 35 to 44 years 45 years and older Gender Women Men Relationship status Couple Solo Race and ethnicity Hispanic or Latino American Indian or Alaskan Native Asian Black, African American Native Hawaiian or Pacific Islander White, Caucasian Multiracial Household size 1 (alone) 2 people 3 people 4 people 5 or more people Current housing status Rent Own Living with family Homeless Had experienced foreclosure Plan to buy in next 3 years Annual income Less than $17,900 $17,900 to $29,850 $29,851 to $47,750 $47,751 to $59,600 More than $59,600 Highest level of education Grade school High school graduate/GED Some college Associate’s degree Bachelor’s degree Professional graduate degree Current work status Full-time Part-time Temporary employee Unemployed Retired Other

N

%

428 374 395 356

25 25 25 25

965 591

62 38

710 833

46 54

32 8 25 534 3 822 61

2