In the wake of the national housing market bust, there has been renewed interest in whether pre-purchase homebuyer education and housing counseling are effective in reducing foreclosure risk among low to moderate income homebuyers. Most existing studies of homebuyer education have attempted to control for selection effects using statistical matching procedures and few have the effects of the housing bust included in the study time period. This study uses a quasi-experimental design based on a natural experiment that occurred during the start-up of a new down payment assistance loan program at Tennessee’s state housing finance agency in 2002 to examine whether homebuyer education reduced foreclosure rates. While homebuyer education was a requirement of the program, borrowers in the first half of the year were unable to take homebuyer education due to a lack of certified providers in Tennessee, while borrowers in the second half of the year were required to take education after a statewide program to train and certify homebuyer educators in the state. T-tests confirmed that the two groups were not statistically different in terms of demographic, mortgage, or credit characteristics.

A competing risks survival analysis based on monthly mortgage payment data from 2002 to 2009 indicates that, after controlling for borrower, mortgage, and economic environment factors, homebuyer education is associated with a significant reduction in the likelihood of foreclosure. However, homebuyer education is not associated with a lower risk of ever becoming 90 days or more delinquent on loan payments. These findings suggest that, in a context where loan selection processes are controlled for through borrowers all receiving the same type of loan product, decreased foreclosure risk from receipt of homebuyer education may be occurring through changes in post-purchase help-seeking behavior rather than through reduction in risk of default.