Larrone Brown has been dodging foreclosure since losing his job in December 2010. He has twice been denied a mortgage modification and says he expects a foreclosure notice any day.
Still, thanks to a counselor he calls “a godsend,” Brown says “things are looking up.”
Brown, a 41-year-old mental health professional in Washington, D.C., is receiving free mortgage advice from a nonprofit housing counseling agency where complicated, on-going cases like his have become more and more common.
“At first it was new situations where people were just getting into the foreclosure situation,” said Darren Snell, Brown’s counselor at Housing Counseling Services, Inc. “Now, most of the clients that we see have already been through the wringer.”
With millions of homes still in the foreclosure pipeline, mortgage counselors across the country say they are handling increasingly complex cases for homeowners who are unemployed, underwater, or redefaulting -- and sometimes, all three. Even as borrowers’ problems become more intractable, federal support is waning.
Counseling programs are funded largely through the U.S. Congress, which has allocated about $620 million to advise approximately 1.36 million homeowners through NeighborWorks America since December 2007, according to a June 11 report.
Last November, Congress also appropriated $45 million for housing counseling in fiscal year 2012 through the Department of Housing and Urban Development after slashing all counseling funding during April budget negotiations. HUD had requested $88 million.
The House passed a 2013 HUD appropriations bill in June allocating $45 million to housing counseling, $10 million less than HUD requested. The bill is now stalled in the Senate, and the White House has said President Barack Obama plans to veto the bill if passed in its current form. Administration officials are urging states to compensate for declining funds with money from a recent court settlement with mortgage servicers.
Counselors, who act as neutral third parties between homeowners and lenders, say their services will be needed as long as unemployment remains high, scammers target struggling homeowners and states frequently change their foreclosure policies.
“The housing counseling community needs to work to restore federal funding,” said David Berenbaum, chief program officer for the National Community Reinvestment Coalition. “Housing counseling organizations have had to downsize across the country at a time when the demands on service are at an all-time high.”
Counselors say they have noticed three trends in homeowners seeking counseling in the past year: First, clients like Brown have been stuck in the process longer through multiple defaults and modifications. Second, first-time counselees are usually facing foreclosure as a result of unemployment or, third, are still current on their mortgages but are concerned about defaulting.
Cy Richardson, vice president of housing and community development for the National Urban League, said “chronic” unemployment is now driving foreclosures, and agencies are helping homeowners “who have much harder-to-rectify cases.”
Seventy percent of the Homeownership Preservation Foundation’s clients have been affected by unemployment or underemployment, according to Josh Fuhrman, senior vice president of government and community relations for HPF, a Minneapolis-based agency that operates a national foreclosure counseling hotline.
Unemployment or Crisis
“It’s not just a low-income problem,” Richardson said. “We’re seeing folks who are middle- and upper-income as well, where loss of employment has been the catalyst, or a family crisis or some other emergency has triggered the problem.”
Due to community outreach and word of mouth, homeowners are increasingly aware of counseling services and are beginning to seek help earlier, according to Rita Godfrey, a counselor for NeighborWorks of Pueblo in Colorado.
“The fact that they’re current does not mean they’re not struggling,” Fuhrman said. He estimated that 50 percent of the foundation’s clients are current on their mortgages, compared with 30 percent last year.
Counselors say desperate homeowners remain vulnerable to scams and frauds. Credit and debit complaints, including complaints about mortgage-related fraud, were the second most-reported consumer complaint in 2011, according to a July 31 study by the Consumer Federation of America and the North American Consumer Protection Investigators.
Counselors repeatedly stress to clients that they shouldn’t pay for counseling, since HUD-approved services are free.
“We have seen a lot of people come in and they’ve paid other people $3,000, $4,000, $7,000,” said Raquel Avila, a foreclosure counselor at Home Preservation & Prevention CARES in Long Beach, California.
HUD-approved counseling agencies offer one-on-one sessions in person or over the phone, as well as foreclosure clinics and workshops. While the number of counseling sessions a client receives depends on his or her financial situation and lender, counselors estimate that at least three hour-long sessions are needed to resolve an average homeowner’s case.
“I can meet with them dozens of times, or there can be others where I meet with them only once or twice and we’re able to resolve the situation,” said Godfrey, who estimated that her two-counselor agency assisted 380 homeowners last year.
Counselors point to a number of studies that indicate counseling’s effectiveness. A December 2011 Urban Institute report conducted for NeighborWorks America found that while 9 percent of homeowners cure their serious delinquencies or foreclosures after 12 months without counseling, that number nearly doubles to 17 percent with counseling. Counseling lowers redefault rates within the first nine months of a modification by 70 percent, according to the report.
A May study commissioned by HUD and conducted by Abt Associates, a consulting firm in Cambridge, Massachusetts, found that 84 percent of 539 homeowners who received counseling remained in their homes 18 months after beginning counseling. About 56 percent were current on their mortgage payments and 28 percent were behind.
“It could be anything from self-curing to finding a loan modification to treading water, but the reality is they’re still in their home,” Fuhrman said.
Counseling sessions typically begin with counselors taking a full inventory of a client’s mortgage documents, bank statements and other relevant materials. After diagnosing the cause of default, counselors create action plans and budgets with clients, especially those who defaulted because they didn’t maintain their personal finances.
Counselors might suggest that clients stop paying for cable television or keep better track of how much they spend on groceries, Godfrey said. They usually guide a client through paperwork and may contact the servicer about a modification on the client’s behalf.
The Urban Institute report, which sampled almost 335,000 loans, found that counseling lowered a monthly payment for a modified loan by an average of $176, 7.8 percent lower than loan modifications obtained without counseling.
When a client cannot stay in his or her house, a counselor’s guidance and support can help borrowers make a smooth transition to a smaller house or out of homeownership, counselors said.
“Just by simply engaging us in the process, they will see a lot more successes,” said Katherine Peoples-McGill, founder and executive director of HPP CARES. “Sometimes it’s just having a person in front of you to say, ‘Hey, this is not going to work’.”
Brown, who will soon start working in a group home for disadvantaged teens, said his mortgage counselor’s support “made me feel like I could breathe.” Brown is a returning client at HCS, where he initially sought counseling in 2011 to receive federal assistance through a District of Columbia mortgage program. After his mortgage funding and unemployment both ran out, he talked to a real estate agent about a short sale of his house.
It was a follow-up e-mail from Snell that encouraged him to go back to HCS and apply for another modification.
“It’s not a guarantee,” Brown said about counseling, “but I feel like I have a better chance.”
Because HUD-approved agencies don’t charge for their services, they rely on HUD and private donors for funding. The $55 million HUD requested from Congress for FY 2013 would directly fund housing counseling for 185,000 families and training for 4,800 counselors, according to HUD’s proposal.
When Congress zeroed out housing counseling funds in 2011, banking groups including the Mortgage Bankers Association pushed for restored funding. William Killmer, the association’s senior vice president of legislative and political affairs, wrote to the Senate Committee on Appropriations supporting “the great work facilitated by this program.”
“I do feel we’re at a point now where it is no longer a question, the value of the nonprofit space in providing these services,” Richardson said.
Even so, counselors predict a bleak outlook for homeowners in the coming years and say client numbers will remain relatively static until at least 2014.
As many as 3.6 million mortgages are expected to enter foreclosure, short sale or distress through 2013, according to a Bloomberg Government study published July 13.
HPF, whose HOPE Hotline has received an average of 1.3 million calls a year since 2007, estimates it will continue receiving at least 1 million calls per year, according to Fuhrman.
“The role of housing counselors is only going to grow,” Berenbaum said.