Housing counseling services suffer under cuts

CHICAGO -- Housing agencies find themselves scrambling to determine how they will serve their communities with dwindling resources after $88 million in housing counseling funds was eliminated from the federal budget.

The cuts in funding from the U.S. Department of Housing and Urban Development, part of the legislation signed by President Obama this month to avert a government shutdown, come amid a recent push by HUD to warn consumers about mortgage-relief scams.

Worries about a potential rise in such scams, as well as having to charge consumers for counseling that was once largely free, have community groups and counseling agencies calling the maneuver ill-conceived and poorly timed.

Groups such as the National Urban League and the National Association for the Advancement of Colored People have predicted a troubling chain of events that could include aproliferation of scam artists, an increase in preventable foreclosures and fewer resources for homeowners who may be forced back into the ranks of renters.

The funding cuts will hit prepurchase, reverse-mortgage and rental counseling. Also at risk: foreclosure-prevention counseling, which became a focus of many agencies' counseling efforts after the housing crisis took hold of the country.

In addition, agencies are expected to find it more difficult to raise private-sector donations without the credibility that HUD funding gave them.

"Here we are on the front lines, we're the ones that are being asked to pick up the pieces and salvage the housing market, and this is what the government does to us," said Brian White, executive director of the Lakeside Community Development Corp., which works in Chicago. "Losing $35,000 is a big hit for us. You're cutting out muscle and bone instead of fat."

Organizations affiliated with NeighborWorks that specifically work on foreclosure prevention through the National Foreclosure Mitigation Counseling program were not affected by the cutbacks. On Capitol Hill, concerns were expressed that the two HUD-funded efforts were duplicative.

The HUD cuts not only will affect direct grants but also those to intermediary groups, which advise consumers to seek out HUD-certified counselors instead of potentially unscrupulous companies that offer to assist consumers for a fee and then don't follow through with their promises.

"We tell [families] to look for the gold standard of HUD certification," said Janis Bowdler, director of the wealth-building policy project at the National Council of La Raza. "Without that certification, we're extremely concerned that foreclosure-prevention scam artists, which we already know are out there in droves, will be targeting our communities, taking the place of trusted counselors."

Last week, representatives of HUD unveiled an anti-scam campaign with the tagline "Know It. Avoid It. Report It" to thwart potential loan modification scammers. The campaign was conceived before the budget compromise.

Chicago's Northwest Side Housing Center must grapple with the loss of 20 percent of its budget, a sum of $45,000 that was used to fund a full-time and part-time counseling position.

"Everyone in the next few weeks is going to be scrambling for alternative sources of funding," said Michele Rodriguez Taylor, executive director of the group. "Bake sales are not going to cover this loss."

Without finding additional private-sector funding sources, the worry is that smaller, community-based groups will have to cut staff or fold, and that could further drain the larger community organizations like Neighborhood Housing Services, where the $75,000 loss is a small part of its $10 million-plus annual budget.

"We are swamped already," Executive Director Ed Jacob said.

On a macro level, there are also concerns that neighborhoods will suffer, particularly those low-income communities whose residents most benefited from prepurchase home counseling.

"You've got homes that are already rehabbed through [the Neighborhood Stabilization Program] and are out there waiting to be sold," said Geoff Smith, senior vice president of Woodstock Institute, a Chicago-based research and advocacy organization. "You need homeowners who have a certain type of training to qualify for these mortgages, and that's what these counselors provide. It's going to be a real problem for rebuilding these communities.

"One of the things that's come out of this [housing] crisis is the importance of counselors, the importance of working with someone to help you understand the true cost of homeownership."

Seniors seeking a Federal Housing Administration-backed reverse mortgage also will be affected because the $88 million being cut includes $8 million that was used to offset the cost of counseling that they are required to receive as part of the loan-qualification process.

Instead of the maximum $125 counseling fee, agencies now will be able to charge whatever they want, so long as they can justify it, said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association.

"Counseling is likely to become a little bit costlier for seniors, and there may be fewer counselors," he said.