Summary: The federal government has numerous programs designed to improve Americans' financial literacy, some of which are targeted at helping consumers determine whether and when to purchase a home, how to manage a mortgage, and how to deal with setbacks that could limit their ability to make timely mortgage payments. However, as we have reported, little is known about the effectiveness of specific strategies for improving financial literacy. In the Housing and Economic Recovery Act of 2008 (HERA), Congress created a pilot program to provide grants to providers of financial education and counseling services to prospective homebuyers. Pursuant to HERA, the goals of this education and counseling include increasing the knowledge and decision-making capabilities of prospective homebuyers, identifying successful methods resulting in positive behavioral change for financial empowerment, and educating prospective homebuyers about options for building savings. HERA also mandated that we submit a report to Congress evaluating this grant program, which was later named the Financial Education and Counseling (FEC) Pilot Program. Accordingly, the objectives of this report are to describe (1) the characteristics of the organizations providing services under the FEC program and how they were selected, and (2) what is known about the program's impact in improving the financial situation and behavior of homeowners and prospective homebuyers who participate in the program.
The nine grantees that have received FEC funding are experienced and geographically diverse organizations: Boulder County Housing Authority, Georgia Financial Education Collaborative, Mission Economic Development Agency, New Hampshire Housing Finance Authority, OnTrack Financial Education and Counseling, Council for Native Hawaiian Advancement, Greater Erie Community Action Committee, Homewise, Inc., Solita's House, Inc. Key characteristics of the organizations providing services under the FEC program include the following: (1) Type of organization. Eight of the organizations are nonprofit organizations that provide financial education and housing counseling services, and one is a public housing authority. (2) Geographic diversity. The nine grantees are geographically diverse, representing most major areas of the country and a mix of urban and rural regions. (3) Financial education or housing counseling experience. Most of the grantees have had at least 10 years of experience in financial education or housing counseling. For example, the Boulder County Housing Authority reported over 20 years of experience in housing counseling. The organization with the least amount of experience, Solita's House, Inc., has been providing counseling for roughly 5 years. (4) Experience with federal grants. All of the grantees had recently received other federal grants, including Community Development Block Grants (CDBG) from HUD or grants from Treasury's CDFI Fund. These other grant programs typically require organizations receiving funds to periodically report on program performance and agree to audits of their financial statements. (5) Financial condition. Eight of the nine organizations reported no material findings from recent audits of their financial statements. One of the newer organizations had not yet conducted an annual financial audit. (6) HUD approval. All nine grantees are HUD-approved housing counseling agencies or part of a network of such agencies. As such, they met HUD's requirements for approval, including having provided housing counseling for at least a year and not having unresolved government audit findings. Grantee organizations have been providing financial education and counseling services under the FEC program for less than a year, and therefore not enough time has passed to meaningfully assess the program's effectiveness and impact. The 2009 grantees have submitted only one performance report to date, and the 2010 grantees have not submitted any. Information for our review was therefore limited to the initial performance reports that the 2009 grantees submitted in January 2011. However, these data cover only a few months of program operations, while some desired outcomes of the FEC program, such as homeownership, can take years to realize. The five organizations that received grants under the fiscal year 2009 round of the FEC program were notified of their awards in May 2010, and Treasury disbursed funds to these organizations in August 2010. Three of the five organizations began using their grant funds to serve prospective homebuyers in August 2010, and one began in October 2010. A fifth organization is using its grant funds for a financial education website, which was still under development as of June 2011. To help ensure that FEC program grantees' impact measures are useful and the results of these measures are accurately recorded, we recommend that the Secretary of the Treasury instruct the directors of the CDFI Fund and OFEFA to provide additional guidance or technical assistance to the grantees on how to accurately and meaningfully calculate the results of the impact measures. This guidance or technical assistance could take the form of recommendations on how best to measure and calculate changes in savings, debt, and credit scores.
