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‘Dumb’ cuts hurt homeowners, buyers

By Polyana da Costa · Bankrate.com
Friday, March 1, 2013
Posted: 4 pm ET

Thousands of struggling homeowners and first-time homebuyers could lose access to free housing counseling once spending cuts that President Barack Obama describes as "dumb" and "arbitrary" go into effect today.

The budget sequestration will result in 75,000 fewer households receiving counseling related to foreclosure prevention, pre-purchase and other types of housing counseling, according to the Department of Housing and Urban Development.

The cuts come at a time when counseling agencies already are overwhelmed by the growing number of people seeking assistance at local housing agencies, counselors say.

"For many smaller agencies around the country that are HUD-approved, the loss of funding would have a tremendous impact and could severely cut back their ability to meet the needs of the public," says Rick Harper, director of housing and senior vice president at the Consumer Credit Counseling Service of San Francisco.

Harper says his agency alone counsels about 2,500 families per month. More than 65 percent of the families are getting foreclosure assistance.

"There are still thousands of families out there struggling, trying to make it through this lingering recession," he says. "If you pull away funding, you are going to pull away resources from those people who need it the most."

Help doesn't go only to homeowners in jeopardy

Counselors also are dealing with an increasing number of first-time homebuyers seeking pre-purchase advice.

"People don't want to make the same mistakes that they've been reading about for all these people who have gone through foreclosure," Harper says. "Before they purchase, they want to make certain that they are prepared so that they don't become a statistic."

Foreclosure and pre-purchase counseling are key elements in the housing and economic recovery, says Marietta Rodriguez, national director of homeownership and lending at NeighborWorks, a network of community development and affordable housing organizations.

"Both kinds of people benefit greatly from working with a nonprofit housing counselor," Rodriguez says. "Taking that accessibility away from them potentially could cause a gap in the marketplace."

Not the first time Congress hits counseling funds

This is not the first time lawmakers cut funding for housing counseling. In 2011, Congress eliminated HUD's grants for housing counseling services. Later, it reinstated $45 million in funding to counseling in 2012. The federal budget for the 2013 fiscal year -- which started in October but has yet to be approved by Congress – calls for $55 million to be allocated to the counseling programs.

With the sequester, most of HUD's housing service programs will be cut by about 8.4 percent, according to estimates in a report prepared in September by the Office of Management and Budget.

How soon will homeowners and potential buyers be affected?

"It could be fairly immediate," Rodriguez says, but it will vary by counseling agency, depending on how their budgets are planned and how much money they have left. Some agencies receive grants and other sources of funding through various partnerships, but others rely mainly on HUD grants to fund counseling programs.

The damage caused by the sequester will continue to grow over time if Congress doesn't consider an alternative to $85 billion in spending cuts concentrated into a seven-month period, says Jason Furman, principal deputy director of the National Economic Council.

"It will keep growing," he says. "It will get worse and worse."

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4 Comments
EIEIO
March 03, 2013 at 9:24 am

8.4% of the projected fiscal increase may be cut. The baseline budget or 2012 working budget for all government programs will stay the same. So these supposed cuts are really only on the yearly automatic increases of spending from the previous yearly budget. Hence, HUD can still service the people as before on their current yearly budget funds. The $85 billion is not all this year, it's about half that for the rest of this fiscal year. Again, these reductions are on the rate of growth a.k.a. increase of yearly budget, not the current working budget itself. There is still going to be a small increase of $15 Billion overall. Defense is where the main cuts/decreases for increased spending is going to happen. This is President Obama's sequestration and he specifically targeted the DOD to take the brunt of it. At least, government programs will have to live with what they get, just like we do.

Bill
March 02, 2013 at 9:38 am

B of A, Eleventh Hour!

“Win/Win for B of A and hardship home owner”

Easy for B of A and investor to keep same title arrangement, just restructure the loan at the B of A approved sale price?

Just say what if??

The sale price is 650K the monthly is 2500 to 3000??, prop taxes incl?

Based upon my current financials, income earnings, I would qualify. @ say a reported $200K per yr?

I would be willing to negotiate and take a 30 yr fixed. mortgage at a 5 yr term. or some agreement to sell within 5 years or refinance?

Owner's Hardship Case:

The owner has invested over 300k in the property, all increasing the current market value! (Appraisal Verified)
Now that the market is turning and housing prices are increasing?
Now that he has the opportunity to recover his investment in the property over the next 5 yrs. he is being forced into short sale by B of A,

Is this what the B of A really wants to do to recovering hardship mortgage customers?

Bill Norwood

Let me see if I can some public support as well?

Some Dude
March 01, 2013 at 4:42 pm

Why should taxpayers pay for mortgage counseling? What is there to counsel? If you can't afford to live where you live, you move.

It's not the taxpayer's job to make sure consumers are informed about mortgages. It's the consumers' job. Furthermore, state and local governments are much better set up to do this sort of stuff, if govt. must be involved.