Community Dividend

Minnesota Home Ownership Center case study illuminates costs of foreclosure counseling

Using a cost analysis, the authors identify how one Minnesota nonprofit can achieve further efficiencies in the design and delivery of its homeownership services.

Leo T. Gabriel - Professor of Business, Bethel University
Richard M. Todd - Vice President, Community Development

Published April 1, 2010  |  April 2010 issue

With a mission to promote successful homeownership, the Minnesota Home Ownership Center (Center), along with its partner agencies, provides services to families throughout Minnesota. The Center operates with the conviction that high-quality education, counseling, and related support services for potential and current homeowners will help families realize homeownership's long-term benefits. Although its services are open to all, the Center emphasizes support for low- and moderate-income Minnesotans and others who often face barriers to homeownership.1/

In the recent housing boom and bust, demand for the Center's homeownership services has been high. Funding and deploying adequate resources to meet the demand is a constant challenge that raises questions about how the Center and its partners can sustain themselves and their valuable services.

With those questions in mind, the Center worked with us in 2009 to examine the cost of three of its primary programs: Home Stretch homeownership classes, pre-purchase homebuyer counseling, and foreclosure counseling. We sought to describe the general cost structure of each program and identify factors associated with high or low costs. Because of the current urgency of foreclosure problems, we focus this article on what we learned about the costs of foreclosure counseling.2/ Our examination shows that the cost per household counseled was fairly consistent across agencies and years. In other words, across the Center's network over a three-year period, the cost of counseling per household showed no systematic tendency to rise or fall as the number of households counseled rose or fell, which suggests that the Center and its agencies have no big, remaining efficiencies they can achieve. However, costs per household varied across agencies in ways that our data did not fully explain. This variability prompts us to conclude by recommending the use of target cost measures and cost reporting to identify efficiencies and best practices that could make the Center's programs more efficient and, thus, more sustainable.

A strategic, statewide partnership

According to community development policy consultant Doug Dylla, sustainability of programs is a concern for many nonprofit organizations providing homeownership services.3/ Dylla identifies strategies that homeownership organizations use to promote sustainability, including economies of scale (e.g., increasing the volume of existing services, such as by expanding into new markets), economies of scope (e.g., offering new services that complement existing services), collaboration with other organizations, and innovative technologies and business processes.

According to several researchers who conducted a case study of the Center's business strategies in 2007, the Center employs all of Dylla's strategies for reducing costs and achieving sustainability.4/ In 2001, the Center began a statewide partnership with agencies that were offering homeowner education and counseling programs. Under the partnership, the Center does not directly offer those services but helps its partner agencies by raising and distributing funds from private and public sources, establishing standards for counseling services, and providing professional training to certify agency staff. The Center also helps the agencies access new technologies and business processes, such as by contracting for shared software or building an interactive web site ( that features links to the partner agencies. By cooperating in these ways, the Center and its partner agencies may have already achieved significant economies of scale and scope. However, despite the efficiencies attained through the statewide partnership, the Center still faces the challenge of sustaining its operations. This motivated the Center to facilitate our study of its program costs.

Identifying the costs

With the help of the Center and its partner agencies, we set out to measure and compare the agencies' costs of delivering the Center's primary homeownership services. The Center wanted to know, for example, if the cost of providing the services varies with the providing agency's organizational type (Community Action Agency, or CAA;5/ nonprofit agency; or government agency) or its clients' location (Twin Cities/metro, nonmetro cities, or rural).

In our examination of the Center's foreclosure counseling programs (the focus of this article), our approach was to measure social costs, or the full costs to society, for three program fiscal years: 2006, 2007, and 2008, with each year beginning in October. Social costs include direct and indirect costs incurred by partner agencies. Direct costs are expenses traced to the delivery of services by agencies. For foreclosure counseling, examples include the counselors' salaries and benefits, credit report access fees, marketing, printing, and training. Indirect costs are expenses that are necessary for the delivery of services but cannot be traced directly to the services. Examples include administrator salaries, rent, utilities, telecommunications, and insurance. In addition, social costs include the value of "in-kind" contributions to agencies. Common in-kind contributions include donated meeting space, pro bono legal work, and waived fees for credit reports. The agencies estimated dollar values for these and other in-kind contributions. In summary, our cost concept is the market value of all the resources the agencies use to provide their foreclosure services.

Costs per household stay roughly constant

With input from the Federal Reserve Bank of Minneapolis, the Center developed a survey for collecting data for the cost study. The survey was sent electronically to 19 partner agencies that provide foreclosure counseling services. Fifteen agencies submitted responses to the Center.6/ This group consisted of five CAAs, six nonprofit organizations, and four government agencies. Eight of the responding agencies are in the Twin Cities metro area, one is in a nonmetro city, five are rural, and one is statewide.

Thirteen of the partner agencies reported data on their foreclosure counseling costs for the 2006, 2007, and 2008 fiscal years, and two more provided data for 2007 and 2008, giving us 43 agency-years of data. In those years, the agencies counseled a total of almost 25,000 households facing foreclosure. The number of households counseled ranged from 20 at one rural CAA in 2006 to more than 1,000 at some metro agencies in 2007 and 2008 and more than 4,500 at one statewide agency in 2008. Because the experience of this statewide agency was so singular, we omit its three years of data from the foreclosure counseling cost analysis we present in the remainder of this article (unless otherwise noted).

The average cost of foreclosure counseling among the remaining 40 agency-years was $410 per household. The graph below illustrates how the total cost of providing foreclosure counseling rose approximately in fixed proportion to the number of households served. Each dot on the graph represents total foreclosure counseling costs and total households counseled over one fiscal year by one counseling agency. Fiscal years are coded by color, and agencies are coded by capital letters. For example, the blue-colored "N" in the upper right represents an agency that counseled just over 1,200 households in 2008 at a total cost of just over $670,000, while the red "N" in the middle represents the same agency in 2006, when it served just under 600 households at a cost of just under $300,000. The reference line in the figure shows what total costs would be if it cost exactly $410 to serve each household. The average relationship between actual costs and households served is well summarized by this reference line. (The good fit between the line and the points is confirmed by formal statistical tests.)

Foreclosure Counseling Costs and Households Counseled

Click on chart to view larger image.

The roughly proportional relationship between total cost and households counseled suggests that the Center's agencies are capable of expanding the volume of their services over time with little change in cost per household. This capability may not hold over very short horizons, such as within an annual funding and budget cycle. However, even over the fairly short three-year period our data cover, the agencies ramped up from serving 2,560 households at an average cost of $368 in 2006 to serving 8,989 households at a statistically indistinguishable average cost of $395 in 2008.7/ This implies that the Center and its partner agencies have, at a minimum, not failed to exploit any large or obvious economies of scale in their joint efforts. It is also consistent with (but does not in itself prove) the view that collaboration can contribute to overall efficiency, as suggested by Doug Dylla and others.

Personnel costs dominated the cost of providing foreclosure counseling. We computed personnel costs to include salaries; employer-paid benefits, insurance, and taxes; and fees for consultants and professional services. On that basis, total personnel expenses averaged 72 percent of total foreclosure counseling costs. In more tangible terms, the Center's foreclosure counseling agencies averaged personnel costs of $56,838 per full-time employee, and full-time employees counseled, on average, 192 households per year, or almost one per 1.3 working days. As a result, personnel costs per household served averaged $296. (At the omitted statewide agency, full-time employees counseled an average of 282 households per year, or more than one per working day.) Consistent with a wide range in their case loads, foreclosure counseling agencies reported from as few as one-eighth of a full-time employee to as many as 9 (or 12 if we include the statewide agency).

The five CAAs providing foreclosure counseling services reported somewhat higher costs per household than the five nonprofits and four government agencies we analyzed. The average cost per household counseled by the CAAs was $450, compared to $378 at the nonprofit agencies and $412 at the government agencies.8/ Nonprofit agencies have lower costs than CAAs because their nonpersonnel costs per full-time employee are reported at just $9,117, compared to a bit over $30,000 at both CAAs and government agencies. Government agencies, but not CAAs, make up for their higher nonpersonnel costs per employee with high average caseloads (244 households counseled per full-time employee, versus 176 at CAAs and 155 at nonprofits).

Our data do not clearly support geographic differences in the costs of providing foreclosure counseling. Our five rural agencies reported an average cost of $408 per household served, just slightly less than the $418 cost reported by our eight metro agencies. Our one nonmetro city agency and one statewide agency both report very low costs per household counseled ($158 and $208, respectively), with very low (city) or very high (statewide) caseloads. However, with only one agency of each type, we cannot reliably determine any geographic patterns.

Recommendations for further efficiency

The Center and its partner agencies have been able to meet an enormous increase in the demand for foreclosure counseling since 2006 while keeping the average cost per household counseled near $400. To us, this suggests that the Center is already helping the partner agencies achieve a high level of efficiency and flexibility in providing much-needed services. However, some agencies report moderately higher or lower costs than their peers, and a few report very different costs. We were not able to fully explain this variability around the generally proportional relationship that exists between total cost and the number of households served. It could arise for a number of reasons, such as:

  • The agencies' costs might truly differ, in ways we did not measure;
  • The agencies might use different accounting practices to record and report costs; or
  • Although the Center trains the agencies to provide a standard level of service, some aspects of program delivery might differ across the agencies (and in some cases should differ, due to variations in local needs and circumstances).

Further data collection and analysis might benefit the Center by providing a deeper understanding of these and other possible explanations.

To that end, we recommend that the Center consider establishing cost targets for its programs based on the number of households served. Targets for direct costs could help the Center allocate funds, establish expectations, evaluate performance, and promote greater efficiency and sustainability.

With the cost data collected for our study, the Center could establish basic cost targets for its programs. A next step might be working with the partner agencies to develop more detailed but attainable targets for cost categories the agencies are expected to manage, such as salaries, staff development, workshop expenses, travel expenses, outreach/marketing expenses, printing, and professional fees. Flexible targets, based on the number and type of households served, agency type, location, and more, may be appropriate. Time standards, such as hours per workshop or lender negotiation, could also be considered. Funding decisions by the Center could be based on the established targets for direct costs plus a percentage allocation for indirect costs, with flexibility allowed for agencies that have special cost factors.

The establishment of targets would enable the Center to conduct regular performance reporting, a process in which differences between actual and targeted costs are analyzed. In that process, an agency with costs that exceed the targets may still be viewed as performing well if the excess costs were incurred in response to unexpected developments, such as an unanticipated increase in demand. Regular reporting will reveal such cases and lead to a better understanding of the factors that drive costs.

By using cost targets and cost reporting, the Center will gain a better understanding of whether reported cost differences among its partner agencies reflect true differences in efficiency as opposed to differences in services or accounting practices. This will help the Center and its partners more clearly identify best practices and promising innovations that can be shared to improve the quality and sustainability of their important homeownership services.

Leo T. Gabriel is a professor of business at Bethel University in St. Paul, Minn. Richard M. Todd is Vice President for Community Affairs and Banking and Policy Studies at the Federal Reserve Bank of Minneapolis.


1/ 2008 Annual Report, Minnesota Home Ownership Center.

2/ A detailed report on the costs of all three primary programs was provided to the Center. A version is available at

3/ Getting to Scale: New Business Strategies for Homeownership, NeighborWorks® Center for Homeownership Education and Counseling, NeighborWorks America, 2007.

4/ J. Michael Collins, Ann DiPetta, Marcia Nedland, and Stephanie Pasquale, Case Studies of New Business Strategies for Homeownership, NeighborWorks Center for Homeownership Education and Counseling, NeighborWorks® America, 2007.

5/ CAAs are private and public nonprofit organizations that implement the Community Action Program (CAP), which was established in 1964 with the passage of the federal Economic Opportunity Act. The goal of CAP is to fight poverty at the local level through social services, education, and advocacy.

6/ The Center identified staff changes as a possible reason why a couple of the agencies failed to respond, but indicated that nonparticipation otherwise appeared random and free of nonresponse bias.

7/ Average costs rose higher in 2007, to an average of $452 for the 5,815 households served that year, perhaps because the agencies were staffing up slightly in advance of an anticipated increase in demand in 2008.

8/ The difference between costs per household at CAAs and the other agencies is statistically significant at a 10 percent probability level if each agency-year is treated as an independent observation. If we first average each agency’s cost per household over time and test using only that one figure for each agency, the difference is no longer significant, due to the smaller number of observations treated as independent.