Grants Fall Short of Foreclosure Counseling Demand

Demand for free foreclosure-counseling grants continues to exceed by far the amounts of federal and other funds available, according to NeighborWorks America.

This year alone eligible applicants requested over $212.7 million in National Foreclosure Mitigation Counseling program grant funds but received only about one-third of the amount needed.

Up to $67.7 million in NFMC program funds have been granted to 37 state housing finance agencies, 17 HUD- approved counseling intermediaries and 84 community-based NeighborWorks organizations to provide counseling to families and individuals at risk of foreclosure.

An estimated 184,000 families facing the threat of foreclosure will be directly assisted with this fifth round of funding now available for use.

Given the still-high unemployment rate that keeps delinquency and foreclosure risk at high levels the need for counseling remains critical. Participating organizations say they have to make up for the difference by applying for state funds if there is any available, or private funds.

Spokesperson Douglas Robinson told this publication that as the administrator of the funds, NeighborWorks’ role is to review the applications, evaluate and score applicants, and then distribute the funds to the organizations that work in areas with more pressing needs.

From this round NeighborWorks community-based organizations will receive a total of $6.8 million at an average of $81,000 for each participating group. Over 1,400 nonprofit counseling agencies and local NeighborWorks organizations across the country are expected to participate.

The funds are earmarked to provide free assistance to families at risk of losing their homes, determine eligibility for the Making Home Affordable programs, help homeowners understand the foreclosure process, and identify possible courses of action. To date, the NFMC program has assisted nearly 1.2 million families nationwide.

Participants reiterate that various reports have indicated counseling helps to lower delinquency and foreclosure rates. Among others February 2011 findings from a Urban Institute review of the NFMC in 2008 and 2009 show the odds of curing a foreclosure is 1.7 times greater for a homeowner who works with a NFMC counselor, compared to those who do not receive counseling.

Also, redefaults on modified loans, or recidivism, decreased among homeowners who received NFMC counseling since homeowners who obtained a mortgage modification due to the NFMC program counseling saved an average of $555 per month through lower payments, compared to $288 for homeowners who did not work with a NFMC program counselor.

Findings from MortgageKeeper Referral Services, Downers Grove, Ill., a developer of a database that connects users with qualified nonprofit and government agencies, indicate the number of homeowners who applied for assistance is up.

Its May Homeowner Needs Status Report showed over 40,000 borrowers in distress asked for referrals during the month, up 15% compared to April. The top three categories of referral requests were heat and utility assistance, food assistance and employment services.

The reason, according to Rochelle Nawrocki Gorey president and co-founder of MortgageKeeper Referral Services, is a sluggish economy where “more homeowners are finding themselves playing catch-up.” So even in May when the heating season is typically over, many homeowners were still behind on their heating bills after “an unusually long and harsh winter.”

Established in 2006, MortgageKeeper assists an average of 1,500 families a day. Counselors and servicers who subscribe to MortgageKeeper’s online database provide struggling homeowners with a list of local nonprofit and government agencies within seconds. Users include Ocwen Loan Servicing and the Homeownership Preservation Foundation’s free HOPE hotline.

Counseling demand from borrowers, however, is not easy to measure because the housing crisis continues and also because not all struggling homeowners seek assistance. So as a rule approvals of fund requests from grantees and sub-grantees and grassroots counseling organizations are based on trust. “It is not our role to tell someone in Ohio, for example, what they should or should not apply for,” Robinson says.

And assuming there is no propensity of fraud or major data inaccuracies, the one strategy participating agencies count on to ensure more borrowers receive counseling is constant improvements in counselor training efficiency that ultimately allows grantees to use a higher percentage of the grant funds to directly assist delinquent borrowers.

NeighborWorks America, whose stated goal is to provide access to affordable homeownership and rental housing along with training of community development and affordable housing professionals, said it will use part of this fifth round of NFMC funding to train about 2,000 counselors. After earning a Foreclosure Prevention Counseling certificate in compliance with the national industry standards, counselors are required to engage in continuing education sessions to ensure their knowledge is current.

According to Robinson, a four- to five-day-long training process, mostly face-to-face with some online sessions that leads to a certification costs NeighborWorks about $1,500.

Counseling assistance overall is an expensive affair. The free, grant-based foreclosure counseling system is operated through three types of intermediaries: state housing finance agencies, HUD-approved counseling agencies and community-based NeighborWorks organizations. All of which can apply directly for NFMC program funds.

Primary intermediaries such as NeighborWorks distribute grant funds to their network of grantees that on their part redistribute it to their local partners or sub-grantees. It means NFMC funds help sustain many local counseling agencies through a chain of grantees and sub-grantees. The longer the distribution chain, the smaller the amount of money spent on each borrower.