The grants are supposed to fund counseling services to assist first-time homebuyers. But Donovan stressed they are also to help homeowners facing foreclosure. He said that homeowners who receive counseling are “twice as likely to receive [loan] modification and stay out of default” than those who do not.
The numbers are grim. RealtyTrac, which tabulates foreclosures, reported that banks have taken possession of 980,000 properties thus far in 2010. Nevada is still the country’s state leader in foreclosures, followed by Utah, California, Arizona and Florida, according to RealtyTrac data. Vacant and foreclosed homes mean a decline in real estate tax revenues which is often accompanied by a decline in a jurisdiction’s capacity to offer services, thus prompting other owners to leave as well.
The crisis has led to calls for a moratorium on foreclosures, a plea that the Obama administration has thus far ignored. But the foreclosure rate has gone down in recent months, partly due to self-imposed temporary freezes because some lenders have launched their own internal investigations into allegations of “robo-signing” of loan documents. “Robo-signing” refers to the practice of an institution’s officers merely affixing their signatures to loan documents as opposed to the legal requirement to familiarize themselves with their contents, a near statistical impossibility given the volume of foreclosure paperwork that has flooded mortgage loan offices.
While moratoriums may provide a temporary reprieve for some homeowners, too many may yet fall victim to fraud by people or organizations representing themselves as mortgage counselors or foreclosure experts. The HUD grants enable legitimate counseling services to offer free expertise as contrasted, for example, with so-called “experts” who often charge an upfront fee and then disappear, or who convince distraught homeowners to sign documents that may result in the legal loss of their homes.
“HUD-certified counseling is one angle, one way, one method of providing some assistance to the public,” said Maeve Elise Brown, executive director of Oakland, Calif.-based Housing and Economic Rights Advocates (HERA) which offers legal and technical assistance services, including counseling, to individuals and organizations throughout California. “The public has been treated so badly by mortgage servicers, homeowners are like prey by the watering hole for rescue foreclosure scammers who have promised them the moon,” Brown said.
The elderly are particularly vulnerable. The $73 million package carves out $9.5 million targeted for use by counselors to educate seniors about whether they can qualify for Home Equity Conversion Mortgages, more commonly known as reverse mortgages. HECMs enable the elderly to draw an income from equity in their homes.
“In addition,” Sec. Donovan’s release stated, “HUD is awarding more than $5 million to three national organizations to train approximately 4,500 counselors who will receive the instruction and certification necessary to effectively assist families with their housing needs.” Grant winners were selected on a competitive basis and the funds are to be funneled to HUD-certified agencies and non-profit organizations in all 50 states. Donovan explained that President Obama had fought for and obtained a 22 percent increase, or an additional $13 million, over the previous funding level in the annually awarded funds as part of the fiscal year 2010’s budget package. Fiscal year 2010 began in October 2009 and concluded in September 2010.
But some worry it’s too little, too late. An officer with one of HUD’s new grant recipients, who personally has more than two decades of mortgage counseling experience, was cautious. Preferring to speak anonymously, she said the need for foreclosure counseling is and has been pandemic for years. “HUD has never embraced counseling” as a primary tool to deter foreclosures, she said, and given the scale of the current crisis, the funds amount to no more than a “drop in the bucket.”
One challenge in meeting the counseling need, she explained, is that a large grant recipient, after deducting its administrative costs, may be disbursing funds to as many as 50 smaller entities that in turn have to stretch those smaller sums over a typically small annual budget. Donovan acknowledged the dispersal process in his statement.
But another important component, she said, is evaluating how counseling assistance is rendered. “Some agencies simply focus on the submission of documents, helping an applicant with filling out paperwork. Others will actually play an advocacy role as well, which is more time consuming and therefore more expensive.”
“One of the ways to strengthen the counseling process is for the major lenders to become more involved with the non-profits, including supporting some of those costs,” she said. “Wells Fargo and Chase are doing that,” she said, but to her knowledge, she said Bank of America and Citibank, two leading mortgage lenders, are not.
"We're not in a normal [housing market] environment," said HERA’s Brown, but "if the [U.S.] Treasury [Department] would actually enforce the existing Home Affordable Modification Program (HAMP), many homeowners would benefit.” HAMP provides eligible homeowners the opportunity to modify their mortgages. She said an impediment to solving the foreclosure crisis is that "some of the biggest companies in the United States, if not the world, appear to be resistant to implementing the HAMP."
But even if HUD’s training initiative successfully yields a 4,500-member cadre of new counselors, they will be thrown into the breach of daunting foreclosure rates. The pace of foreclosures will likely accelerate in 2011 should the robo-signing crisis be resolved in a way that allows lenders to expedite the foreclosure process.
Nevertheless, “You can’t measure success of counseling just by the number of loan modifications. If the only thing counseling can provide is a reality check to homeowners who may have unrealistic expectations about their options, that’s useful,” said Brown.
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