HUD: Settlement Funds Critical For Counseling Needs

HUD secretary Shaun Donovan

Congress has restored a housing counseling fund for the U.S. Department of Housing and Urban Development after eliminating it in 2011 and at almost half of the $88 million approved during the first two years of the Obama administration. Now HUD officials worry about the amount of settlement dollars to be used for counseling.

“Even the $45 million total that we were able to win in the budget this year is not adequate,” said HUD secretary Shaun Donovan during a press conference. It is not enough “to fully meet the needs particularly given the crisis that we’re facing,” which is why, he argued, the administration has proposed to increase the 2013 housing counseling budget to $55 million. 

In fact the grants will be distributed among 468 national, regional and local counseling agencies approved by HUD for broad use--including foreclosure counseling.

Part of the roughly $2.5 billion provided to the states through the $25 billion mortgage servicing settlement also is expected to be used specifically for one-to-one foreclosure prevention, other workout related counseling and legal aid to foreclosures.

HUD’s money will be used “for a broad range of counseling” issues, Donovan said, making even more important the role of mortgage servicing settlement dollars in foreclosure counseling.

“The remedy to those problems, just like the problems themselves, is highly concentrated in states that were hardest hit,” he said, so the combination of the HUD funds with the servicing settlement dollars, which are very targeted” will help fulfill the need.

Currently most AGs are in the process of considering what to do with the settlement funding, Donovan said. “We’re particularly concerned that in a number of states, like Wisconsin and others, there have been discussions of using a significant amount of this money to fill budget gaps” instead of housing related purposes. 

Donovan is campaigning with state AGs to promote a more aggressive state participation in foreclosure prevention counseling and community revitalization efforts following the example of Indiana Attorney General Greg Zeller and Illinois Attorney General Lisa Madigan.

Nonetheless the federal government cannot “directly affect” local level decisions, he said, since state attorney generals and in some cases, depending on state law, governors and state legislators will have the ability to control the settlement funding at their discretion. 

What HUD can do, he added, is “make clear how important it is that housing counseling be part of this equation” because a family is twice as likely to stay in the home if they get help, or if they find out that there is help available. “Than an investment in counseling can dramatically increase the impact of a principal reduction” or other workouts foreseen in the settlement, he said.

As a rule the need for foreclosure counseling is concentrated in the hardest hit states, while the need for pre-purchase, rental and reverse mortgage counseling is more broadly distributed.

HUD grants will be used to assist homebuyers, distressed homeowners, renters and the homeless and to offer financial literacy training to individuals and families.

Over  $36 million in grant funds will directly support the housing counseling services provided by 27 national and regional organizations, 6 multi-state organizations, 16 State Housing Finance Agencies and 419 local housing counseling agencies.   

Regional agencies are the primary recipients that further distribute “much of HUD’s housing counseling grant funding” to community-based organizations that provide services directly to low- and moderate-income families seeking assistance—which means costs vary and depend on these agencies’ discretion.

Up to $2 million is awarded to three national organizations to train counselors and help improve counseling quality. Another $4 million is earmarked to assist senior citizens seeking reverse mortgages or Home Equity Conversion Mortgages.

“One of the reasons we were able to win back funding in the 2012 budget for counseling is because we were able to demonstrate to Congress the impact,” Donovan said, even though HUD does not provide any individual counseling cost rates or other borrower specific cost efficiency metrics.

The best metrics that illustrate the positive impact of counseling, he said, are findings from the Urban Institute showing delinquent homeowners who receive counseling are twice as likely to get a modification and avoid foreclosure than those who are not. In addition, a recently completed HUD study shows that 9 out of 10 of those who received HUD counseling still were in their homes 18 months after the assistance.

HUD is also monitoring the effects of before purchase housing counseling which takes longer to measure. “But we’re seeing results there too,” Donovan said. HUD data show counseling “would effectively pay for itself” through better loan performance over time, he added, and is gradually becoming part of the mortgage process.