Foreclosure Fighters: Where Is the Funding for Nonprofit Housing Counseling?

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The news is stunning. At the end of 2011, approximately four years since the crescendo of the mortgage foreclosure crisis, the U.S. Department of Justice (DOJ) has reached a settlement with Bank of America (BofA) concerning discriminatory lending practices by the BofA unit that used to be Countrywide Financial Corporation. In 2008, Bank of America acquired Countrywide and they have been paying for it in penalties and fees ever since, cleaning up the mess of failing mortgages and displaced home purchasers that Countrywide left behind. 

The recent settlement concerns Countrywide’s practice of steering borrowers, typically minorities, to mortgages that cost them more than they needed to. As a result, many of these borrowers lost their homes due to foreclosure. The agreement involves a payment of $335 million from BofA to compensate some 210,000 victims of Countrywide’s practices. Add that to a $108 million settlement BofA reached with the Federal Trade Commission (FTC) to compensate 450,000 borrowers who paid inflated fees as they negotiated with Countrywide regarding defaults. 

The good side of this story, if there is one, is that it was the nonprofit sector that doggedly brought the foreclosure crisis to light, identified the unindicted criminals behind these schemes like former Countrywide CEO Angelo Mozilo, and stayed on the case to make sure that the huge economic devastation wrought by the likes of Countrywide would not go unpunished—or more accurately, would not go without mechanisms of compensation and amelioration.

On the downside, as leaders at two of the most prominent nonprofits in this battle—the National Council of La Raza and the Center for Responsible Lending—have noted in the Wall Street Journal, it will be difficult to find some of the families among the victims and to calculate precisely how much compensation they should receive. The FTC has already learned many will not be findable; a previous DOJ settlement with the American International Group (AIG) found only 78 percent of the victims entitled to checks.

With lives uprooted by the loss of their homes due to disreputable lending schemes concocted by next-to-unregulated mortgage lenders and brokers, families are now supposed to line up and collect a cash payment to assuage their pain. Many will probably think this is just another public-private partnership of the banks to scam them out of more money.  

The Justice Department says it will take any of the unused funds and give them to nonprofits and public agencies for housing counseling programs, which is the ultimate irony of the DOJ and FTC settlements. Had Countrywide not been a mortgage lending bottom-feeder, this situation might have been avoided—though avoiding it would have required the kind of banking and consumer regulations sought by the Dodd-Frank Act. Congressional conservatives and high-power lobbyists from banks like Bank of America now strenuously oppose such regulation. 

The crisis might also have been somewhat mitigated, though not averted, if these Countrywide-financed home purchasers had access to successful nonprofit-delivered housing counseling services for prospective homebuyers and existing homeowners encountering mortgage troubles. At the front end of the process, these counseling services might have prevented many  foreclosures by providing homebuyers with assistance, training, and technical support to help them sidestep some of the built-in traps and problems of mortgages provided by Countrywide and other predatory lenders.

The experience of NeighborWorks America and others underscores the success of pre- and post-purchase housing counseling as a fact. So explain why the President’s initial FY2012 budget (which survived on Capitol Hill for a half-hour or so) pegged housing counseling at only $88 million, the same as the requested amount for FY2011. Even worse, the housing counseling budget for 2011 was zeroed out with no discernible effort to try to appropriate dollars to increase the availability of housing counseling services. For FY2012, Congressional appropriators continued to zero out housing counseling

Now it appears that, rather than reaching an accommodation to approve a budget with reasonable numbers for housing counseling appropriations, Congress and the White House have decided to leave the function of housing counseling to the vagaries of legal settlements with banks charged with discrimination or other housing market crimes. Let’s make it clear: nonprofits, on their own, could not have headed off the Wall Street-induced recession, but nonprofit-delivered housing counseling has helped tens of thousands of households and could have helped perhaps hundreds of thousands more had our government made the needed public sector investment.  It’s time for the entire nonprofit sector to fight for housing counseling appropriations delivered by nonprofit housing counseling agencies. Based on the evidence, this can continue to be an arena of nonprofit competence and accomplishment—if Congress and the White House remember that housing counseling requires an appropriations number above zero.

  • Donna Dziak

    As a past manager of housing counseling programs, I can say that mortgage counseling services have been rendered almost ineffectual over the past 7 years due to the way loans were allowed to be bundled and sold as securities. In 2000 a counselor could call a lender and that lender would have the note on the loan. By 2007-2008 when the mortgage crisis began to unfold, a counselor could not negotiate with the lender or servicer because they didn’t have final say. HAMP rules were tragically ineffectual because lenders could opt not to use HAMP and most chose not to use HAMP to modify a loan. At the end of the day post counseling is lacking in its effectiveness because lenders have no reason to work with a housing counselor. The major banks have no regard for counselors. Up thru 2011 I talked with bank reps who had no idea what housing counselors did and if they were familiar their response was one of dismissiveness. Yes, we did have some successes, but the vast majority of our clients that had a situation that we deemed could be salvageable if the lender/servicer would cooperate was a little less than 20%. For funders to put money behind post counseling services, there has to be a better ROI. And that could improve with a better defined relationship between lenders/services and housing counselors. And lending reform around the bundling of loans would help improve the effectiveness of post counseling. Also, HUD reporting rules for non profits are overly complex and down right Byzantine. For my agency we had hundreds of clients that went through our program. I had to report to many funders. HUD insisted we use a web based system that I could not import data from. This meant entering data twice. Trust me this is a colossal waste of time and money. HUD made it almost impossible for us to continue to maintain our HUD certification despite our well earned reputation for offering excellent counseling services and running a cutting edge program. It was my recommendation that we sever our ties with HUD as their rules didn’t make it cost efficient for us to continue the relationship. There needs to be a restructuring of how post counseling is funded, reported and how this activity fits into the lending industry in as much as an active role as escrow, mortgage insurance and appraisal businesses.

  • A. January

    I couldn’t agree with the previous commenter (Donna) more. The funding mechanisms and rules placed by HUD make it almost impossible for housing counseling agencies to be effective because so much time must be spent on data entry and, in the newly un-funded environment, fundraising.

    I have worked with nonprofit housing counseling agencies for 3 years doing fundraising, marketing, outreach and events for the HUD-approved agencies in my state. As a “foreclosure prevention coordinator” I have been baffled by both congress and the banks’ unwillingness to help fund these programs. Every time a borrower is brought current or successful in a modification or other workout option, the banks save big money on what would otherwise have become an unperforming, vacant REO. HUD is happy to make more and more guidelines, but the benefit of HUD approval has virtually disappeared without a dedicated federal funding source.

    As a result, the nonprofits have turned on each other. No longer are our agencies working together to try to entice larger funding pools to take interest in housing counseling. No longer are they sharing best practices, bank contacts and helpful information with one another. They’re all applying to the same few private foundations and have become increasingly competitive and paranoid as the threat of agency closure looms over these nonprofits. Many have considered giving up their HUD approval and moving into a for-profit, fee-for-service model, making their services less available to those who need them most.

    I met with one agency director today who is considering tapping into the liquor and beer industry for funding. She’s hoping that alcohol vendors will take up her cause, because the federal government and the banks who most directly benefit from her tireless work have totally failed to do so. Perhaps they will – it’s not much of a stretch to see the alignment of the two if you consider how many underwater homeowners and frustrated, overworked housing counselors have turned to the bottle for liquid comfort in the last few years.

  • Bill Nelson

    Excellent article that highlights some known and some not-well-known issues regarding foreclosure. Of course the best time for such counseling is BEFORE the foreclosure process gets underway. At USA Cares, a national military charity, we have been saving homes of military and veterans for several years thanks to our donors and an initial grant from HPF. We do not take federal grants and are thus able to actually spend our time and effort directly assisting affected military and veteran families. Of the 354 houses we have saved from foreclosure, 351 remain in the hands of the military homeowner. Our Lender Education Course is on the web designed to help lenders and realtors better undestand the unique features of military service and pay. Every loan officer in the US who deals with military and veteran borrowers should graduate from our CEU credited course. USA Cares provides counseling as well as financial assistance to military and veteran homeowners in trouble–no loans, only grants. Thousands of military folks have had their rights under the Servicemembers Civil Relief Act violated by a variety of well-known lenders. Finding these folks should be a top priority of the independent “finders” on behalf of the OCC. Non-profits such as ours who work with thousands of military personnel each year should be enlisted into this mission. Bill Nelson, Executive Director, USA Cares

  • rick cohen

    Thank you all for your comments. I would affirm the comments of Donna and A. by reminding readers what happened in 2008, during the tail end of the Bush Administration when Congress gave counseling money directly to the Neighborhood Reinvestment Corporation (NeighborWorks), bypassing HUD entirely. I always thought that was primarily a Congressional vote of no-confidence in the then HUD Secretary, Alphonso Jackson, who was embroiled in all kinds of scandals, but I think it was a reflection on HUD’s inability in some cases to get out of its own way. In the early days of the Obama Administration, in its early budgets, HUD was trying to reclaim its direct administration of the counseling funds. The nonprofit sector should have been impressed with the fact that Neighborhood Reinvestment a.k.a. NeighborWorks took and administered the congressional grant and got the money out in something like 6 months, in a process that would have tied HUD up in knots. But the other issue involved in Donna’s and A’s critique is that the federal government has done little to make the banks work with counselors, because the banks and servicers can be unresponsive (due to the structure of the securitized loans and many other factors, including sheer disorganization and incompetence) with little official sanction and penalty. IN this situation, we have unresponsive and uncooperative banks, for the large part, abetted by a federal government unwilling to really put the screws to them to radically restructure loans and a Congress and administration unwilling to invest in nonprofit housing counseling. And Bill, keep up your good work helping military families. Most people don’t know about the serious stresses on military families in the housing market or on military-provided or -financed housing. It’s a story to be told along with the story of the nonprofit groups working to help military families.

  • Frank Demarais

    Compensation for Counseling of home buyers represents another significant challenge in the housing recovery. The pull back in first time buyer programs and the movements for higher down payment need to be reversed, with the use of mandatory HB Education a successful model. The capacity to perform the needed counseling can only develop if the RESPA rules, managed by HUD, can allow direct compensation (at or below settlement). Counseled low down payment borrowers represent the buyers we need to begin to absorb inventory.