If there was any doubt about whether it is better financially to be a big bank or a small housing counseling nonprofit, consider how both are faring in terms of government handouts more than four years into the housing crisis. The federal government has paid financial institutions, mostly big banks, $615 million in incentives to modify troubled home loans to lower costs for borrowers.
Meanwhile, 500 housing counseling agencies that rely on a comparatively meager federal grant program in order to help homeowners navigate the modification process are laying off staff and reducing services after Congress cut their funding in half.
"It's not like we are seeing less of a demand for our services," said Kathy Germain, director of housing at The Rural Ulster Preservation Company, a nonprofit in the Catskill region of New York, which recently laid off three counselors.
Indeed, about 1 million homeowners are expected to be eligible for loan principal write-downs and other relief under a broad settlement reached last week between five of the biggest banks and the states, and President Obama also recently announced new initiatives to expand the Home Affordable Refinance Program to help more underwater borrowers who owe more on their loans than their homes are worth. These efforts are likely to further increase the already strained workloads of housing counselors, even as they try to make do with less.
Still, there is potentially some good news for counseling agencies on the horizon. The banks agreed to pay $3.5 billion to the states as part of last week's settlement. Officials have signaled that states may use some portion of their cut to support housing counseling. As of Tuesday, decisions about how that money would be spent were still up in the air.
Housing counselors are the front-line shock troops in the foreclosure wars. They help homeowners navigate the thicket of government loan modification programs, filling out forms and ensuring they are received. They often know who to call at the the institutions that service the loans in order to assure a successful modification. They also know when to involve a foreclosure lawyer. Difficult cases may require dozens of hours of their time.
A housing counselor helped save Rosemary Lane's two-family home in Queens, New York. A home health aide, Lane saw her hours unexpectedly cut in 2010. She also had a tenant, she said, who refused to pay rent. Her monthly mortgage payments of nearly $3,000 were suddenly out of reach.
She applied for a loan modification with JPMorgan Chase, but like many other homeowners, Lane said she was frustrated by the process. She claims she would fax income verification and other documents to the bank, only to learn later they had never been received. When she called the bank for help, she could never reach the same person twice.
Housing counselors and lawyers at CAMBA Legal Services, a New York nonprofit, worked with her for more than a year, eventually securing a refinancing that lowered her monthly payment to $1,143.
"At every step they were working with me, telling me not to give up," Lane said.
An unpublished study by the Furman Center for Real Estate Policy from April 2011 found that borrowers who had received counseling in New York City were about 30 percent more likely to receive a modification than homeowners who had not consulted a counselor.
Homeowners who got loan modifications after talking to a housing counselor paid an average of $267 a month less than they would have otherwise, according to a separate study recently cited by the Government Accountability Office.
The trouble started for housing counselors started last year, when Congress eliminated agencies' main source of federal funding, an $88 million grant program administered by the U.S. Department of Housing and Urban Development. Congress later restored about $45 million for 2012.
Steven Xanthopolous, the executive director of Western Tennessee Legal Services, said that four counselors at his organization could lose their jobs. The nonprofit has relied on a $1.2 million HUD grant to pay its staff and also to support 25 other rural legal aid groups throughout Appalachia and the Mississippi River delta. For now, the agency has frozen salaries -- counselors average 11 years of experience and earn $33,000 a year -- and passed along more health care cost to employees, Xanthopolous said.
Likewise, BothHands, a housing agency in Flagstaff, Arizona, used HUD money to pay for one counselor full-time, plus another part-time, said Devonna McLaughlin, the executive director. Those jobs haven't gone away, in part because the agency has received money from another government initiative, the National Foreclosure Mitigation Counseling program.
That program got a budget bump in 2012 to $85 million, up from $65 million, which has helped alleviate some of the financial pressure, McLaughlin said. But that money comes with more strings attached, she said.
"It doesn't matter if you spend two hours with a client or 40 hours with a client, you get funded at the same level," McLaughlin said. Most foreclosure cases require far more than two hours, she said. The money also doesn't pay for a whole range of other services provided by housing counselors, such as helping elderly homeowners secure a reverse mortgage.
Hardest hit are counseling agencies in New York, which had benefited from the Foreclosure Prevention Services Program, a state initiative that funneled $25 million in federal stimulus dollars over the past three years to housing counselors and legal services lawyers. Previously, the state had funded the program out of its own coffers.
The budget that Gov. Andrew Cuomo submitted to the state legislature in January eliminated that funding. Last week, housing advocates rallied in Albany to try to convince lawmakers to restore the money.
The program saved the state "an immense amount of money" in avoided defaults and foreclosures, said Kristin Brown Lilley, policy director at Empire Justice Center in New York. The state is in the top five nationally in achieving loan modifications under the Home Affordable Modification Program in large part because of the program, she said. "It just makes no sense" to eliminate the funding, she said.
Cuomo's office did not return a call for comment. In lieu of housing counseling and legal services funding, the governor has proposed creation of a foreclosure relief unit in the Department of Financial Services, but the details of how that would work haven't been revealed. Lilley said that such a unit would be helpful, but can't replace direct homeowner assistance.
New York is scheduled to receive $136 million as part of the 49-state mortgage settlement agreed to last week. Attorney General Eric Schneiderman has said he plans to use some of that money to support housing counseling and legal services, though details have not been released.
Lilley said she is excited about a potential new stream of funding, but that housing counselors do not anticipate seeing any of the money this year.
Other housing counselors in the state are drafting diet-restricted budgets as a result of the uncertainty.
Rural Ulster's housing counseling budget was $260,000 in 2011, Germain said. So far this year, the nonprofit has secured just $92,000 in dedicated counseling money, and that is assuming an expected $50,000 grant pans out, Germain said.
The organization has not yet had to turn any homeowners away, but caseloads for the five employees who remain after layoffs have nearly doubled to more than 100 each, and foreclosure prevention counseling has been severely curtailed, Germain said.
"Six months ago our foreclosure counselors would follow the homeowner to the end of the process, which could take two years," Germain said. "Now homeowners get one face-to-face meeting and then are on their own."
HUD fell a full year behind in distributing its grant money to housing groups, a point on which Congress zeroed in when deciding to cut funding, said Candace Mason, senior director of housing and national grants at the National Foundation for Credit Counseling, in an interview last year.
HUD has said it will move much faster to distribute grant money. Grants to subsidize counselors for 2012 will go out in mid-March, an agency spokesman said, 120 days after the allocation.
Since 2007, nearly 9 million homes have been lost to foreclosure, according to data from RealtyTrac. About 4 million are currently in default or in some stage of foreclosure.
More than one in five homeowners is underwater on their mortgage.
CORRECTION: A previous version of this story incorrectly said that HUD had not received $45 million from Congress to set up a new Office of Housing Counseling. In fact, the office is being funded as part of HUD's general budget and also from the $45 million grant program.