HUD counseling grants are an apparent victim in the latest federal budget battle. In a compromise forged in the final hours before a partial government shutdown, a commitment for $88 million in grants for housing counseling was cut from the budget. The bill was passed in the House and Senate on Thursday.
Of the $88 million, $9 million was earmarked specifically for reverser mortgage counseling.
Assuming the cut in grant funding is approved, the move echoes a scenario faced by counseling agencies each year. The grants made available by HUD each year to fund housing counseling are not sufficient to cover all the counseling costs incurred by the counseling agencies. In terms of reverse mortgage counseling, agencies will extend across the board free counseling to clients for as long as the grant funds are available. Once the funds dry up, agencies then must then charge clients for their counseling services.
However, for certain clients, the counseling fee must always be waived regardless of the availability of grant funding. In Mortgagee Letter 2011-09, HUD clarified that counseling agencies are able to charge a fee that is fair and reasonable and is commensurate with the services provided. The letter also made clear that agencies may not collect a counseling fee from clients whose income falls below 200 percent of the Federal Poverty letter at the time of the counseling session.
HUD has long held that counseling agencies must ensure that the counseling session is independent of any influence by lenders and that fees are paid by no one other than through grant funds or from the client (directly or from loan proceeds). This is combined by the requirement to provide a client with a list of 10 agencies so that the client is allowed to make their own selection of agency and not be steered to a particular agency by their originator.
The cuts in counseling funding will unfortunately hasten the end of available free counseling session, but some will argue that this encourages clients to be a little more cautious in evaluating the program before committing to counseling.
The question that has to be resolved will be the amount that agencies will deem necessary to charge for their counseling services. Prior to ML 11-09, HUD had indicated that $125 was a fair and reasonable fee to charge for the counseling sessions. However, the letter acknowledged that increased requirements have extended the time requirements for sessions and have allowed agencies to increase their fees as long they stay within the criteria.
Housing counseling agencies raised concerns about how the funding cut may impact other housing counseling programs. In a letter to members of the House and Senate, housing groups expressed concerned that families may be unable to receive the counseling supported needed. "Not only does this program provide financial support, it sets the organizational standards for delivering quality services," the groups said. "Further, these cuts will have a devastating impact on the families that rely on these programs for support."