Safe as Houses: Why was funding cut for HUD foreclosure counseling?

Posted Wednesday, August 31, 2011 in Analysis

Safe as Houses: Why was funding cut for HUD foreclosure counseling?

Laura Buxbaum (left), along with counselors Diane Sherman (right), Jason Thomas, and Linda Lajoie, at CEI headquarters in Wiscasset.

by Gina Hamilton

WISCASSET -- It is no secret that the housing bubble has collapsed, and continues to implode.  Over the last four years, as scandal after scandal rocked the financial services world, affecting everyone from hedge fund managers to small businessmen to laid-off homeowners, the way forward has been rocky at best.

But for homeowners, there has been something of a life raft ... foreclosure counselors, who help by making contacts with local and national banks, trying to help struggling homeowners connect with programs designed to help them stay in their homes.

That is, until now.

No one is really sure why the Department of Housing and Urban Development (HUD) has had its foreclosure counseling program zeroed out for fiscal year 2011; it is not that the need has greatly diminished, according to Diane Sherman from Coastal Enterprises, Inc. (CEI), one of several agencies charged with helping homeowners facing foreclosure.

In FY2011, foreclosure filings in Maine were down very slightly to 4983 from 5171 the year before.  Both numbers were down from FY2009 (5841) because of the slowdown in filings owing to foreclosure practices of many banks, especially the infamous 'robosigning' practice, which is still being investigated by all 50 state attorneys general.  Also, because of securitization and bank mergers, it is not clear who owns the note on many of these homes, and court cases have -- finally -- supported homeowners who challenge the standing of the bank or servicer to foreclose.

However, the amount of homes entering foreclosure is still unacceptably high.

"As terrible as these numbers are, they still don't capture the hit to the local economy in terms of the losses faced when a house is foreclosed," Sherman said.  "When people buy or own a home, they buy refrigerators and lawnmowers.  They pay taxes.  When a home is empty, not only does the economy suffer, the rest of the neighbors suffer, too."

That's because foreclosed homes sell for very little, and when neighbors put their own homes on the market, they are forced to take into account the comparables, which often include foreclosures.  If a foreclosed home is in the neighborhood, and it is comparable in size and condition to a non-foreclosed home, even if it sold at auction for a tenth of the original value, any homeowner who wants to sell has to take that price into account when pricing his or her own home.

Individuals often experience severe mental stress when going through a foreclosure.  Foreclosure and job loss, often combined, are only slightly less stressful than the loss of a spouse or child by death, and many families who undergo a foreclosure often find themselves with relationship difficulties, even divorce.  Many veterans are faced with foreclosure, too, and any underlying battlefield stress, such as from post-traumatic stress disorder, can be exacerbated by the fiscal stress they and their families are under.

Communities, too, may feel the pinch as property values plummet, causing them to readjust their mill rate or decrease their spending for vital services such as schools, public services, and roads and transportation.

The loss of the HUD counseling funding may have even been an oversight.  The funds were zeroed out in the Republican House, and not restored in the Senate, even though Sen. Olympia Snowe, at the very least, has written a 'Dear Colleague' letter to attempt to get the funds back for FY 2012.  It quietly disappeared during one of the myriad continuing resolutions necessary because an actual budget has not yet been approved.

Snowe, along with Sens. Robert Menendez (D-N.J.),  Jay Rockefeller (D-W.Va), and Daniel Akaka (D-HI) wrote the letter to request to reinstitute the nearly $88 million in funds to HUD that was cut from the 2011 Federal budget. By the time the letter was sent, 23 senators had signed on.

The letter listed Sens. Patty Murray and Susan Collins as primary recipients; Senator Murray is Chairman of the Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, of which Senator Collins is a ranking member.

The letter states that cutting the Housing Counseling Assistance Program funding jeopardizes the program beyond Fiscal Year 2011 as other programs’ budgets won’t be able to cover its costs. It mentions the critical nature of the housing counseling program as “it has been the primary source of housing information and resources for prospective and current homeowners, renters, and seniors.”

“In addition,” the letter read, “it is the only program that funds reverse mortgage counseling, which is mandatory for senior homeowners who seek a Home Equity Conversion Mortgage.”

Calls to Sen. Collins' office were not returned by presstime, but she was an early advocate of foreclosure counseling, calling on HUD to provide this service as early as 2008, as the crisis began to unfold. 

The HUD homeowners program, which also offered first-time homebuyer counseling, was supported by constituencies as varied as the real estate market, mortgage lenders, and advocates against predatory lending practices. 

Was it successful?

"Quantifying success is more complicated than the numbers bear out," Sherman said.  "Of the people we've helped, some have stayed in the home, some have been successful at negotiating another option with the lender, and some simply didn't have the resources ... because of unemployment or other losses ... to continue to be homeowners.  That's why the early (first-time homebuyer) counseling is just as important as the foreclosure counseling.  We can help people realize that they maybe can't afford a place right now, before they make the mistake of taking an 80/20 loan (a typical subprime loan that puts a second mortgage on the home to cover the downpayment)."

Sherman said that many people who undergo homebuyer education are able to avoid foreclosure, because they are going into the process with knowledge.

While CEI does not anticipate closing up their foreclosure counseling service on October 1, when the funding ceases, they do anticipate difficulties in the next year without restoration of funding. Laura Buxbaum, Director of Housing Resource and Policy Development at CEI, does not believe the agency will be able to continue offering foreclosure counseling beyond 2012 if funding is not restored.  "At the very least, the level of staffing we currently have will have to decrease," she said.  "That will severely affect the services we can offer."

Because CEI is a statewide agency, her small group of counselors will have to pick up the slack for agencies that can no longer afford to continue offering services, on an ever-smaller budget, she said.

Other foreclosure counseling services may not be even as fortunate as CEI.  Some rely entirely on HUD funding, unlike CEI, which has other funding mechanisms.  Individual counselors, especially, who contract with state or local agencies and do not have the means to conduct their own grantwriting may be put out of business.

Meanwhile, the number of homes in foreclosure, nationwide, is at an all-time high.  A recent study suggested that at least a third of American homes were at some stage of foreclosure. 

"We are hoping our delegation works to have funding restored quickly," said Buxbaum.  "Now is not the right time to end this vital service."

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