HUD cuts to devastate mortgage counseling agencies across nation

Introduction

Housing counselors at Western Tennessee Legal Services were plenty busy, even before one of the region’s largest employers, a Goodyear tire factory in tiny Union City, shut its doors in July.

The plant closing, which put nearly 2,000 employees out of work in a rural part of the state, meant more work for counselors like Emma Covington. Covington said she already takes 18 to 20 calls a day and meets in person with people who need counseling on foreclosures and other housing issues.

Now, like many of its clients, the legal nonprofit will have to make do with less.

Earlier this year, Congress defunded the $88 million grant program administered by the U.S. Department of Housing and Urban Development that helped support more than 7,500 housing counselors across the country, including those at Western Tennessee. Funds run out Sept. 30.

The cuts come at a terrible time, say counseling advocates.

In the second quarter of 2011, more than 3.4 million home mortgages nationwide were 90 or more days delinquent or in the foreclosure process. More than one in five mortgage borrowers owe more on their mortgages than their homes are worth, according to government data.

The counseling money may not be coming back. The House Appropriations Committee recently approved a budget for 2012 that also doesn’t include any HUD housing counseling dollars. A group of senators is trying to restore funding, but even if successful, it is unlikely that funds will reach counselors before next spring, at the earliest.

The looming gap in funding and continued uncertainty about the program’s future means layoffs and reduced hours for counselors at nonprofits across the country at a time when demand for their services is greater than ever.

“These are rough times for our clients and our staff,” said Steven Xanthopoulos, the executive director at Western Tennessee Legal Services. “We are faced with some hard decisions.”

Western Tennessee may lay off as many as four employees when its $1.2 million HUD grant runs out at the end of this month, Xanthopoulos said. Many more counselors could lose their jobs at the 25 rural legal aid groups throughout Appalachia and the Mississippi River delta that the nonprofit supports with its share of the grant money, he said.

The National Council of La Raza supports 50 housing counseling agencies that helped 65,000 families last year with about $1.2 million from HUD. Thirty of those agencies will close their doors if Congress does not restore the HUD housing counseling funding, said Graciela Aponte, a legislative analyst.

“We are in the middle of foreclosure crisis,” Aponte said. “This is devastating for our families.”

HUD grants also support one of the nation’s biggest housing counseling training programs. NeighborWorks America used a $3 million HUD grant to fund 1,200 housing counseling training scholarships to its mobile nonprofit training university last year. When the HUD money goes away, so will those scholarships, a spokesman said.

The program – whose cost is modest, by Washington standards – is being suspended at least in part because HUD is a full year behind distributing the grant money to housing groups.

“HUD has been slow to distribute the money and Congress zeroed in on that,” said Candace Mason, senior director of housing and national grants at the National Foundation for Credit Counseling.

In recent testimony, a HUD official said that the agency has a plan to reduce the distribution timeframe to 180 days.

Some have questioned the effectiveness of the programs but the Government Accountability Office cited several studies that show counseling helps struggling homeowners avoid foreclosure and prevent them from lapsing back into default – especially if the counseling occurs early in the foreclosure process.

One study cited by the GAO found that clients who received counseling were 1.7 times as likely to be removed from the foreclosure process by their mortgage servicer as borrowers who did not. Clients who got loan modifications paid an average of $267 a month less than they would have otherwise, according to the study.

Counseling advocates say there appears to be general antipathy toward HUD, an oft-criticized federal agency, from some members of Congress related to the agencies past failings.

Congress also hasn’t yet provided $45 million mandated by the Dodd-Frank financial regulation law for HUD to set up a new Office of Housing Counseling, which will set counseling standards and dole out grants to agencies.

Here, too, HUD has been slow to act. According to the GAO, a working group at HUD is “in the process of developing a plan” for how to organize that new office, but is unable to say when it will submit it.

HUD already has an office that seems to have a similar function: the Office of Single-Family Housing. HUD officials say the primary change needed to create the new office is the reassignment of staffers who work on housing counseling activities, but also have other responsibilities.

Staffers at the House committees responsible for the funding did not comment for this story.

Foreclosure prevention made up the single-biggest slice of any housing counselor’s workload in 2009 and 2010, according to HUD, with nearly half of all queries coming from homeowners in trouble. What makes the HUD grants so valuable, housing counselors say, is that the money can be spent to help people resolve a variety of housing woes, in addition to foreclosure.

For example, the Federal Housing Administration requires seniors who want a Home Equity Conversion, or reverse mortgage to first receive counseling. Since 2005, more than 486,000 seniors received one of those loans, about 3.6 percent of all counseling activity, according to HUD.

Many of these seniors, especially in rural areas, have nowhere else to turn, said Covington, the Tennessee housing counselor. “People can’t afford to travel to our office much less to Memphis and Nashville,” she said.

Homes on the Hill, a Columbus, Ohio, counseling service, is already operating on a razor-thin margin in terms of both budget and staffing, said executive director Stephen Torsell. Counselors have had their hours cut and clients have faced long waits for an appointment – several weeks in many cases.

The nonprofit receives HUD money through La Raza. The annual grant is quite small—about $75,000 per year—but like other housing nonprofits, Homes on the Hill uses the HUD money to solicit matching funds from private donors.

There is still a chance that Congress will at least partially fund the housing counseling program for 2012. A Senate subcommittee recently signed off on $60 million in funding for 2012, but whether the funding makes it into law is uncertain.