4:45 p.m. This post has been updated.
The recent budget deal struck between Republicans and Democrats would slash funding for housing counseling, a move that advocates say would force counseling agencies to lay off staff amid the foreclosure crisis.
One of the primary sources of money for counseling agencies is a program administered by the U.S. Department of Housing and Urban Development. The budget agreement would reduce that program's funding from $88 million to zero. The effect on agencies would be "absolutely devastating," said Judy Hunter of the Rural Community Assistance Corporation, a non-profit based in Sacramento, Calif.
The HUD funding is "really the spine on which housing counseling programs exist," said Bruce Dorpalen of Affordable Housing Centers of America, a national nonprofit formerly known as Acorn Housing Corporation. There are about 2,800 HUD-approved agencies throughout the country, which provide a range of services to millions of homeowners and prospective homebuyers free of charge. About half of the counseling sessions provided in 2010 were dedicated to helping those facing foreclosure, according to HUD.
Meg Reilly, a spokeswoman for the Office of Management and Budget, said, "these were very tough choices to make."
Reilly pointed out that the agreement had left intact a $65 million fund devoted to counseling for foreclosure avoidance. Advocates said that fund has not come close to meeting the demand of homeowners facing foreclosure. NeighborWorks, which administers the fund, requested $113 million for 2011 but received just over half that amount.
Counseling agencies offer traditional services such as financial reviews and budgeting, but they also increasingly have been called upon to help homeowners navigate the often-bewildering maze they face when trying to avoid foreclosure. The Treasury Department has relied on the infrastructure of agencies in running the administration's mortgage modification program, referring homeowners to HUD-approved counselors through a national hotline.
The cuts would go into effect later this year. Agencies could seek other private or public funds to try to avoid layoffs, but some are already scrambling to make ends meet, advocates said. "What we're seeing across the market is that both on the foreclosure front as well as with first-time homebuyers, funds to support housing counseling agencies are drying up," said Bernell Grier, chief executive officer of Neighborhood Housing Services of New York City.
The House is expected to vote on the proposed budget this week.
We sought comment from the chairs of the appropriations subcommittee that oversees HUD (in the House, a Republican, and in the Senate, a Democrat), and we'll update this post if we hear back.
Update: A spokesperson for the Republican-led House Appropriations Committee responds that the HUD funding was duplicative, given the separate funding for foreclosure prevention funding through NeighborWorks. As we said above, however, advocates say that the NeighorWorks funding hasn't been enough, and the HUD program frequently funds foreclosure prevention counseling.
The committee added that HUD had been slow to distribute the funding in the past and cited complaints from Democratic lawmakers in 2010 about this problem in a congressional report. "The stagnation of funding for a year or more makes it very difficult to defend as a necessary expenditure, despite the obvious demand for the program," the report said. The 2011 funding bill required HUD to release the money faster due to the "dire need for these funds."
A HUD spokesman said the department was "working on ways to streamline the grant completion process" and was "determined to make significant improvements."