[House Hearing, 112 Congress] [From the U.S. Government Publishing Office] HUD AND NEIGHBORWORKS HOUSING COUNSELING OVERSIGHT ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON INSURANCE, HOUSING AND COMMUNITY OPPORTUNITY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION __________ SEPTEMBER 14, 2011 __________ Printed for the use of the Committee on Financial Services Serial No. 112-61U.S. GOVERNMENT PRINTING OFFICE 72-602 PDF WASHINGTON : 2012 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES SPENCER BACHUS, Alabama, Chairman JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts, Chairman Ranking Member PETER T. KING, New York MAXINE WATERS, California EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois RON PAUL, Texas NYDIA M. VELAZQUEZ, New York DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York JUDY BIGGERT, Illinois BRAD SHERMAN, California GARY G. MILLER, California GREGORY W. MEEKS, New York SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York JOHN CAMPBELL, California JOE BACA, California MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina KEVIN McCARTHY, California DAVID SCOTT, Georgia STEVAN PEARCE, New Mexico AL GREEN, Texas BILL POSEY, Florida EMANUEL CLEAVER, Missouri MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin Pennsylvania KEITH ELLISON, Minnesota LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana BILL HUIZENGA, Michigan ANDRE CARSON, Indiana SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware ROBERT HURT, Virginia ROBERT J. DOLD, Illinois DAVID SCHWEIKERT, Arizona MICHAEL G. GRIMM, New York FRANCISCO ``QUICO'' CANSECO, Texas STEVE STIVERS, Ohio STEPHEN LEE FINCHER, Tennessee Larry C. Lavender, Chief of Staff Subcommittee on Insurance, Housing and Community Opportunity JUDY BIGGERT, Illinois, Chairman ROBERT HURT, Virginia, Vice LUIS V. GUTIERREZ, Illinois, Chairman Ranking Member GARY G. MILLER, California MAXINE WATERS, California SHELLEY MOORE CAPITO, West Virginia NYDIA M. VELAZQUEZ, New York SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri LYNN A. WESTMORELAND, Georgia MELVIN L. WATT, North Carolina SEAN P. DUFFY, Wisconsin BRAD SHERMAN, California ROBERT J. DOLD, Illinois MICHAEL E. CAPUANO, Massachusetts STEVE STIVERS, Ohio C O N T E N T S ---------- Page Hearing held on: September 14, 2011........................................... 1 Appendix: September 14, 2011........................................... 41 WITNESSES Wednesday, September 14, 2011 Bell, Peter H., President & CEO, National Reverse Mortgage Lenders Association (NRMLA).................................... 25 Cackley, Alicia Puente, Director, Financial Markets and Community Investment, U.S. Government Accountability Office.............. 8 Fitzgerald, Eileen M., Chief Executive Officer, NeighborWorks America........................................................ 6 Hill, Candy, Senior Vice President, Social Policy and Government Affairs, Catholic Charities USA................................ 27 Holston, Deborah C., Acting Deputy Assistant Secretary for Single Family Housing, U.S. Department of Housing and Urban Development.................................................... 4 Olson, Debra, Interim Executive Director, DuPage Homeownership Center, and Board Member, DuPage County, Illinois, on behalf of the National Association of Counties (NACo).................... 29 Raymundo, Raul I., Co-Founder and Chief Executive Officer, The Resurrection Project........................................... 31 APPENDIX Prepared statements: Bell, Peter H................................................ 42 Cackley, Alicia Puente....................................... 49 Fitzgerald, Eileen M......................................... 66 Hill, Candy.................................................. 81 Holston, Deborah C........................................... 89 Olson, Debra................................................. 104 Raymundo, Raul I............................................. 114 HUD AND NEIGHBORWORKS HOUSING COUNSELING OVERSIGHT ---------- Wednesday, September 14, 2011 U.S. House of Representatives, Subcommittee on Insurance, Housing and Community Opportunity, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 2:05 p.m., in room 2128, Rayburn House Office Building, Hon. Judy Biggert [chairwoman of the subcommittee] presiding. Members present: Representatives Biggert, Hurt, McHenry, Duffy, Dold; Gutierrez, Waters, Clay, Watt, and Sherman. Also present: Representative Green. Chairwoman Biggert. This hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order. We will start with our opening statements. Without objection, all members' opening statements will be made a part of the record. I will recognize myself for such time as I may consume. Good afternoon and welcome to this hearing on HUD and NeighborWorks Housing Counseling Oversight. I welcome today's witnesses. Today, we will examine the Federal housing counseling programs administered by HUD and the Neighborhood Reinvestment Corporation, or NeighborWorks. Housing counseling is an important form of financial literacy. As a former real estate attorney, I understand and appreciate the value of wise counsel. Now, we don't ever go to a closing on a home purchase without an attorney, which I enjoyed being able to go to all those, and I cannot say enough good things about encouraging prospective or current homeowners to seek in person HUD-certified housing counseling. When constituents come to my office for help, we always coordinate with our local housing counselors. That is why I am concerned that appropriations for the housing counseling programs administered by HUD were zeroed out in Fiscal Year 2011 and would remain cut under the Fiscal Year 2012 appropriations bill. Meanwhile, a separate program, NeighborWorks, has become the only recipient of Federal housing counseling funds, and I fear that by eliminating funds over the 2,300 HUD-certified local housing counseling agencies, as well as States and intermediaries, many seniors and first-time home buyers and others will lose access to housing counseling, and that is unacceptable. In the darkest days of this financial crisis in my Congressional District, it has been the counselors, not the array of new Federal foreclosure programs, that have helped many families restructure their budget, communicate with lenders or servicers, avoid foreclosure and stay in their homes. More than any government foreclosure scheme, reliable and effective financial counseling has made the difference for struggling homeowners. It also helps potential borrowers make informed decisions and avoid financial pitfalls down the road. Throughout this crisis, we have been reminded that some individuals would be better served by renting versus owning a home. We have also seen how certain financial products, such as mortgages or reverse mortgages, are not suitable for every household. That is why the law requires seniors to obtain impartial, nonpartisan advice from a HUD-certified housing counselor before securing a reverse mortgage. Today, our task is to closely examine Federal housing counseling programs and ensure they are working effectively to help those in need. I look forward to today's discussion, particularly about the distribution of funds, standards for agencies, counselors and counseling, and data on the effectiveness of counseling. I also look forward to an update on HUD's progress in setting up the Office of Housing Counseling and witnesses' comments on discussion draft legislation to enhance oversight and transparency of NeighborWorks housing counseling programs. The bottom line is that Congress should fund and encourage effective housing counseling to be more accessible in our communities. It is the first line of defense to prevent another foreclosure crisis, helping some families recover from this one, and is critical for our seniors seeking security in their retirement years. With that, I yield to the ranking member, Mr. Gutierrez from Illinois. Mr. Gutierrez. Thank you so much, Chairwoman Biggert. And thank you to all of the witnesses for joining us this afternoon as we discuss these vital housing counseling programs. I know that some of you have traveled from Illinois to be here, so a special welcome to you. As we sit here today, one in four families are underwater on their mortgages. Home values continue to fall in many parts of the country, and millions of families are still facing the possibility of foreclosure. Meanwhile, programs designed to prevent foreclosure aren't reaching as many people as intended. Faced with these challenges, it is essential that we use taxpayer dollars responsibly and in the most effective way possible. That is part of what we are here today to discuss. We need to work toward better coordination between various housing counseling programs, better research to show us which programs give us the biggest bang for our buck, and better oversight and guidance for the thousands of agencies providing these services in our community. But here is the unfortunate fact: While we sit here working with HUD and NeighborWorks, challenging them to constantly improve the way they deliver their services, HUD's housing counseling programs have been almost entirely stripped of funding for the second year in a row. HUD is facing $88 million in cuts that would have been used for pre-purchase counseling, rental counseling, and reverse mortgage counseling for seniors. This makes no sense. The market is desperate for more first-time home buyers, and we are shutting down programs that help families toward homeownership. It is getting more difficult for renters to find affordable apartments in many parts of our country, and we are telling community organizations to stop helping them. Seniors are struggling to make ends meet, and we are denying them the access and information they need to make tough decisions about reverse mortgages. It is hard to believe that this is how Congress is choosing to respond to an ongoing housing crisis. Today is a challenge to talk about solutions. We need to know that housing counseling dollars lead to positive outcomes in our neighborhoods. We need to understand the impact that funding reductions will have on the ground. I am looking forward to a productive discussion about what works. Before I conclude, I would like to ask the chairwoman for unanimous consent to submit two statements for the record: one from the National Council of La Raza; and the other from the Coalition of HUD Housing Counseling Intermediaries. Chairwoman Biggert. Without objection, it is so ordered. Mr. Gutierrez. With that, I thank the gentlelady for hosting this hearing, and I really look forward to working with my colleague, the chairwoman from Illinois. Thank you so much. Chairwoman Biggert. Thank you, Mr. Gutierrez. While we are on that, I would also insert for the hearing record, without objection: a letter dated September 12, 2011, from the National Association of REALTORS; and a letter dated September 13, 2011, from the executive director of the HOPE NOW Alliance. Mr. Hurt from Virginia, you are recognized for 1 minute. Mr. Hurt. Thank you, Madam Chairwoman. I thank the gentlelady for yielding, and I am grateful for her leadership as the subcommittee conducts another vital oversight hearing. Today, we are examining the efficiency and effectiveness of Federal housing counseling programs operated by HUD, NeighborWorks America, and the State and local organizations with which they work. Since the beginning of the 112th Congress, the Financial Services Committee has been engaged in rigorous oversight of the Dodd-Frank Act as well as the agencies and programs within the committee's jurisdiction. Today's hearing demonstrates this committee's commitment to this important work. As our country faces a national debt exceeding $14.5 trillion, my constituents, the people of Virginia's Fifth District, and all Americans are demanding that the Federal Government do more to maximize the value of the limited funds we can allocate to Federal programs, such as the housing counseling initiatives that this subcommittee is analyzing today. I thank Chairwoman Biggert for holding this important hearing. I thank each of you for joining us and sharing with us your insights. I yield back the balance of my time. Chairwoman Biggert. I thank the vice chairman of this committee. And with that, I recognize Mr. Dold of Illinois for 1 minute. This must be Illinois day here. Mr. Dold. We certainly are concerned about housing in Illinois, so we are glad to have the witnesses here. Thank you all for joining us. I certainly want to thank Chairwoman Biggert for hosting the hearing. And I want to thank again all of you witnesses for joining us today and for your important work in our community. As our witnesses will detail for us all, housing counseling helps people, and counseling assistance is especially important during these difficult financial conditions. At the same time, we must acknowledge our extremely difficult fiscal reality with repeated trillion and a half dollar deficits and with over $14.6 trillion in our national debt, the official national debt--if we look at the unofficial debt and our liabilities, long-term liabilities, it is significantly larger than that. This fiscal reality requires very difficult decisions with very difficult trade-offs that will necessarily dissatisfy many people. In this context, housing counseling programs, like many other Federal programs, must show meaningful, measurable, and verifiable cost-effectiveness, along with transparency and accountability. By doing so, we maximize the chances that the highest number of beneficiaries will receive the maximum available assistance and that American taxpayers will support these programs to the greatest extent possible given the fiscal realities. I look forward to hearing from our witnesses about how we can work together to achieve these important objectives. Thank you, and I yield back. Chairwoman Biggert. Thank you, Mr. Dold. We will now proceed with our first panel of witnesses. We have with us for the first panel: Ms. Deborah Holston, acting Deputy Assistant Secretary for Single Family Housing, U.S. Department of Housing and Urban Development; Ms. Eileen Fitzgerald, chief executive officer, NeighborWorks America; and Ms. Alicia Puente Cackley, Director of Financial Markets and Community Investment, U.S. Government Accountability Office. Without objection, your written statements will be made a part of the record, and you will each be recognized for a 5- minute summary of your testimony. We will start with Ms. Holston. You are recognized for 5 minutes. STATEMENT OF DEBORAH C. HOLSTON, ACTING DEPUTY ASSISTANT SECRETARY FOR SINGLE FAMILY HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Ms. Holston. Chairwoman Biggert, Ranking Member Gutierrez, and members of the subcommittee, I thank you for the opportunity to testify today regarding HUD's Housing Counseling Assistance Program and the steps we are taking to speed and improve the program to ensure that it has the greatest possible impact in our Nation's communities. I appreciate the strong support for the program provided by so many members of this subcommittee, including, of course, Chairwoman Biggert. For nearly 4 decades, HUD's Housing Counseling Program has played a critical role in helping American families realize the dream of owning a home and finding quality, affordable rental housing. In 2010, HUD-approved housing counseling agencies counseled more than 3 million households, a record for the program. However, Congress recently elected to cut HUD's housing counseling appropriation from $88 million in 2010 to zero in 2011. While we will be able to fund housing counseling agencies through September 30th, without 2012 appropriations, counseling agencies across the Nation will face a gap in funding. The effects of our severe economic downturn make this a wrong time to cut counseling funding. Madam Chairwoman, there is strong evidence that housing counseling is one of our most powerful weapons to help distressed homeowners avoid foreclosure. Preliminary findings from a recent study by ABT Associates show that the vast majority of homeowners who receive foreclosure counseling from HUD-approved agencies, that is 84 percent, continue to live in their homes after 18 months. More than two-thirds were current on their mortgage. In terms of pre-purchase counseling, one well-cited study found that face-to-face counseling was the most effective mode of delivering counseling, resulting in a 34 percent reduction in delinquencies. Put simply, Madam Chairwoman, housing counseling works. And HUD's Housing Counseling Program is focused on results. Through the first three quarters of 2011, agencies have used HUD grant funds to help more than 15,000 clients bring their mortgages current; 11,000 to obtain mortgage modifications; 11,000 to purchase homes; 12,000 to become mortgage-ready; and nearly 8,000 seniors to obtain reverse mortgages. The HUD program is the only dedicated source of Federal funding for the full spectrum of housing counseling. Because of this, agencies can use their funds to provide services that respond to local needs. For example, in Florida, agencies provided 60 percent of their clients last year with foreclosure prevention counseling while also dedicating 20 percent of their services to providing reverse mortgage counseling to their large population of seniors. Housing counseling grant funds are made available to locally approved housing counseling agencies, intermediaries, and State housing finance agencies. Approximately 650 local agencies are unaffiliated with an intermediary or State agency. Last year, HUD provided grants to approximately 400 of these agencies, more than 100 in New York, North Carolina, Florida, California, and Illinois, States hard hit by the housing crisis. That said, Secretary Donovan has shown a commitment to measuring what works and discovering what we need to do better, and housing counseling is no exception. One area where we know we can improve is speed. Historically, running the housing counseling grant competition and obligating all the funds has taken about 8 months from the time appropriations are made, and we know that is not quick enough. That is why HUD has developed a department-wide plan to streamline its processes and reduce that timeframe. We have already made great progress. HUD has reduced the average number of days between appropriations and NOFA publication to 60 days, an 82 percent reduction from last year. But it is not just about doing our jobs faster. We also need to ensure that every taxpayer dollar is achieving results. Our certification and monitoring includes onsite and remote reviews. In 2011, we enhanced our monitoring of intermediaries by awarding a contract to a top 10 CPA firm to ensure compliance with Federal financial and administrative grant requirements. Finally, as part of the Dodd-Frank Act, we have been in discussions with the Appropriations Committee about establishing the Office of Housing Counseling, and we expect to submit our request for staffing reorganization to counsel Congress in the next 60 days. So, Madam Chairwoman, I am confident that the changes we are making will result in a more effective Housing Counseling Program. I look forward to continuing our work together, and, with that, I would be happy to take your questions. [The prepared statement of Ms. Holston can be found on page 89 of the appendix.] Chairwoman Biggert. Thank you so much. Ms. Fitzgerald, you are recognized for 5 minutes. STATEMENT OF EILEEN M. FITZGERALD, CHIEF EXECUTIVE OFFICER, NEIGHBORWORKS AMERICA Ms. Fitzgerald. Thank you. Good afternoon, Chairwoman Biggert, Ranking Member Gutierrez, and members of the subcommittee. My name is Eileen Fitzgerald and I serve as CEO of the Neighborhood Reinvestment Corporation, doing business as NeighborWorks America. Thank you for inviting us to speak today. My testimony will address NeighborWorks America, our role as administrator of the National Foreclosure and Mitigation Counseling Program, or NFMC, and the need for a broad scope of housing counseling programs. NeighborWorks America was established by Congress in 1978. It is the Nation's original community public-private partnership model. NeighborWorks provides support for a wide range of housing and community development activities, not just housing counseling, to its network and to the broader field. Today, NeighborWorks' affiliated network includes more than 235 local and regional nonprofits serving urban, rural, and suburban communities in all 50 States. NeighborWorks has a rigorous annual assessment process for the members of our network, and we hold them to high standards. For those organizations that cannot meet the standards, we provide intensive assistance. However, if they are unable to turn around their organization, we do disaffiliate them. We also have led a coalition, including HUD, to develop the national industry standards, which establish criteria for housing counseling and training. My written testimony goes into greater detail about our governance, our oversight, and our transparency. NeighborWorks is an efficient and effective local delivery system for getting taxpayer dollars working quickly in our cities, towns, and counties, which is especially important in this period of scarce Federal budget dollars. In Fiscal Year 2010, NeighborWorks organizations generated $4 billion in direct investments in their communities, leveraging our core Federal appropriation 23 to 1. In Fiscal Year 2010, NeighborWorks and its network assisted 252,000 families with their housing needs; owned and managed 80,000 quality, affordable rental units; counseled over 100,000 families on homeownership; and supported more than 22,000 local jobs. NeighborWorks, as the largest nonprofit trainer in the affordable housing and community development field, also awarded 20,000 training certificates to staff and board members at more than 3,500 nonprofit and governmental agencies. NeighborWorks was already a national leader in the fight against foreclosure when Congress asked us to administer the NFMC program in Fiscal Year 2008. To date, more than 1.2 million homeowners have been counseled through NFMC. We view this as a temporary role, responding to the mortgage crisis. The NFMC legislation required us to launch the program and award funds within 60 days, which we did. NeighborWorks continues to get money out quickly while ensuring a high level of compliance and oversight to meet our fiduciary duty to Congress and to the taxpayers. And through an independent study by the Urban Institute, we know that NFMC foreclosure counseling works, saving homeowners $3,200 a year on modifications compared to clients who did not go through NFMC counseling, and they also have shown that NFMC reduces the likelihood of redefault. We know, however, that the best defense against foreclosure is objective education and counseling before a borrower buys a home, and the most reliable counseling is provided by independent agencies that put consumers and communities first. NeighborWorks is a strong partner and supporter of HUD's Housing Counseling Program. For many years, NeighborWorks, as a HUD-approved intermediary, has received HUD housing counseling funds to pass through to some of our affiliates. HUD funds also support a portion of the housing counseling training which we provide to practitioners. HUD housing counseling funds have been critical to building the infrastructure for a strong foundation in a wide range of counseling activities, pre-purchase, rental, reverse mortgage, for NeighborWorks organizations and other agencies. In comparison, NFMC provides very targeted support only for foreclosure counseling activities. In closing, on behalf of the hundreds of thousands of families served by the NeighborWorks network and NFMC counselors across the country, I thank the committee for its support and stand ready to respond to any questions. Thank you. [The prepared statement of Ms. Fitzgerald can be found on page 66 of the appendix.] Chairwoman Biggert. Thanks so much. Ms. Cackley, you are recognized for 5 minutes. STATEMENT OF ALICIA PUENTE CACKLEY, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Ms. Cackley. Chairwoman Biggert, Ranking Member Gutierrez, and members of the subcommittee, good afternoon. I am pleased to be here to participate in today's hearing on housing counseling. As you know, housing counseling can take many forms and can help consumers determine whether and when to purchase a home, how to manage a mortgage, and how to deal with setbacks that could limit their ability to make timely mortgage payments. My statement today is based on recent work we have conducted on one type of housing counseling, homeownership counseling, and we will discuss three related topics: first, what research suggests about the effectiveness of homeownership counseling and the challenges of conducting such research; second, shortcomings that our prior work found in Federal agencies' implementation of homeownership counseling requirements; and, third, the status of efforts to establish an Office of Housing Counseling within HUD. With respect to the research, the limited body of literature on homeownership counseling does not provide conclusive findings on the impact of all the different types of such counseling. Recent research on foreclosure mitigation counseling, which helps financially distressed homeowners who are delinquent on payments, suggests that it can help homeowners avoid foreclosure and prevent them from lapsing back into default. Findings on pre-purchase counseling, which helps potential home buyers learn about buying a home and explains the financial responsibility of homeownership, are less clear. One study we reviewed concluded that such counseling lowered the default rate for new homeowners, while other studies showed no effect. Efforts to measure the impact of homeownership counseling have been hampered by a lack of data, as well as by challenges in designing studies and creating effective performance measures. Our recent evaluation of Treasury's financial education and counseling pilot program illustrates this last point. As a condition of receiving grant funds under the program, grantees are required to report on results of 5 performance goals within 6 months of disbursement and annually thereafter. We found that some grantees were calculating the results of their impact measures in erroneous or misleading ways or were not fully capturing meaningful information, potentially limiting the usefulness of these data for assessing program effectiveness. Further studies on the impact of homeownership counseling are under way at HUD and at Fannie Mae, and these studies are designed to overcome some of the limitation we and others have found related to data and study design. Turning to my second topic on implementation of homeownership counseling programs, prior GAO work identified shortcomings in the implementation of homeownership counseling requirements for two Federal programs. A 2009 study of HUD's reverse mortgage program found that HUD's internal controls did not ensure that counselors were complying with program requirements. HUD later made improvements to the program that specifically addressed our recommendations. Another GAO study from 2009 found that Treasury did not effectively track whether borrowers required to seek counseling under the Home Affordable Modification Program actually received the counseling or whether it reduced their rate of redefaults. Treasury officials said that they had not implemented a monitoring process because it was too burdensome for Treasury and for mortgage servicers. They also did not plan to assess the effectiveness of counseling in limiting redefaults, in part because they believed that the benefits of counseling on the performance of borrowers with high debt burdens were well-documented. We continue to believe that monitoring and assessment would provide valuable information on whether the counseling requirement is having its intended effect. Finally, with respect to HUD's establishment of the Office of Housing Counseling, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, according to HUD, the agency is developing a reorganization plan but has not yet submitted it for congressional review. Budget constraints could affect the new counseling office. Although the Dodd-Frank Act authorized $45 million per year through Fiscal Year 2012 for the operations of the new office, HUD has not received appropriations for this purpose. In addition, appropriations for Fiscal Year 2011 eliminated HUD's housing counseling assistance funds, which are primarily grant funds for approved counseling agencies. HUD officials told us that some counseling agencies had already reduced the level of services they provided due to this cut in funding. Housing counseling groups we spoke with said that the cuts in HUD funding, which they use to leverage private funds, ultimately could result in fewer counseling services for prospective and existing homeowners unless private funds make up the difference. Chairwoman Biggert, this concludes my prepared statement. I would be happy to respond to questions. [The prepared statement of Ms. Cackley can be found on page 49 of the appendix.] Chairwoman Biggert. Thank you so much. With that, we will turn to questions from the members. I will recognize members for 5 minutes each to ask questions, and I will claim the time for the first 5 minutes. Ms. Holston, in House Report 111-564, House appropriators noted that the reason they zeroed out HUD's housing counseling funds for Fiscal Year 2011 is because HUD was too slow to disburse funds. In House Report 111-218, to accompany the Fiscal Year 2010 Transportation-HUD appropriation bill, House appropriators expressed a similar concern of the slow expenditure of funds. Has HUD fixed this problem? Ms. Holston. Thank you, ma'am, for the question, and I would like to say with great pride that we have tremendously increased our NOFA process. In fact, in 2011, we have decreased the time it takes to clear a NOFA to 60 days, which is an 82 percent reduction in that timeframe. So we are very happy to say that there have been significant improvements in our NOFA process. That also includes a major reduction in time from publication to obligation. In fact, in our most recent grant competition, comparing publication to obligation, we were actually comparable to the NeighborWorks' most recent competition. So we are very pleased to say that not only is the Department improving its NOFA processing, we are also doing that for the Housing Counseling Assistance Program, where we are actually streamlining that process to include a streamlined manner for high-performing agencies or high-performing grantees. Chairwoman Biggert. All right. Thank you. Then, Ms. Holston, again, what evidence do we have that housing counseling is effective? In my Congressional District, our local housing counselors do a great job with helping many struggling families or those seeking impartial advice about buying a home or securing a reverse mortgage. But what kind of data has HUD collected to measure the results of housing counseling and its effectiveness? Ms. Holston. HUD is conducting a housing counseling outcome evaluation in partnership with--excuse me, ma'am. HUD has actually conducted research and is conducting a review of 10 prior studies by Collins and O'Rourke--finds that counseling provided before a homeowner purchases a home can reduce the likelihood of mortgage delinquency. Most studies have found that pre-purchase counseling leads to positive results, reducing delinquency anywhere from 19 to 50 percent, although one study did report no impact. HUD's PD&R office has implemented a controlled experiment to measure the impact of pre-purchase counseling on a random sample of pre-purchase counselees over time. We will have the preliminary results of that study a year from now, next fall. Chairwoman Biggert. Is there room for improvement, to better track the effectiveness of counseling? Ms. Holston. Yes, there is room for improvement, and we are studying that, the effects of counseling now. Chairwoman Biggert. Okay. As a follow-up, we want to make sure that all counseling agencies as well as their counselors are qualified and giving sound advice to our constituents. Are HUD standards for oversight of agencies and counselors sufficient, and is there room for improvement? Ms. Holston. HUD has actually embarked on a strengthened oversight program where we are overseeing not only our HUD- approved--not only the national intermediaries, but also the State housing finance agencies. We oversee multiple State agencies and also local housing counseling agencies. We actually conduct onsite visits or remote monitoring of all of them, all of the affiliates of our national intermediaries, and we do that once every 2 years, at least once every 2 years, providing technical assistance when we are there. We also are in the process of developing a risk model with realtime data that will allow us to target or better target our remote monitoring, and which would tell us where to go for onsite monitoring. Chairwoman Biggert. I have additional questions, but I will try later or submit them for the record. I recognize Ranking Member Gutierrez for 5 minutes. Mr. Gutierrez. Thank you so much. Ms. Holston, following up, you spoke about program dollars coming to an end in the very immediate future. Just what program dollars again are coming to an end, and what particular types of counseling would it impact, or all counseling in general, housing counseling in general? Ms. Holston. HUD provides the only dedicated source of Federal funding for the full range of housing counseling; that is pre-purchase to foreclosure prevention. We fund 450 grants-- or we provide 450 grants a year. If we were not to receive 2012 funding, then we would not be able to provide that funding. Mr. Gutierrez. All housing counseling programs under HUD, none of them would receive any funding? They would all come to an end in the very immediate future? Ms. Holston. Yes. Mr. Gutierrez. Okay. I just wanted to make sure that it was all and not just some of the programs. Ms. Holston. All of them. Mr. Gutierrez. So how many people were served by these housing counseling programs last year? Ms. Holston. In 2010, we served 3,000 counselees or clients. Mr. Gutierrez. But how many families? So for $88 million, we served 3,000 families? Ms. Holston. I am sorry, 3 million. I am sorry. Mr. Gutierrez. I was hoping we were going to do a little bit better than that. It is okay; take your time. Ms. Holston. Okay. We actually serviced in 2010, 3 million families, and that includes 108 with our specific HUD funds. Mr. Gutierrez. Okay. Ms. Fitzgerald, what is looming in the immediate future and what needs to happen so there aren't some draconian impacts on housing counseling? Ms. Fitzgerald. As we mentioned in our testimony, we think having a HUD Housing Counseling Program is really critical. What it does is support an infrastructure of agencies out there that then, depending on the issues in those communities and the issues like foreclosure, they can leverage that infrastructure to attract additional funding. But without that base of HUD counseling funds, those agencies don't know that they can just keep their staff on, or train their staff to provide that broad range of services. We know that foreclosures, unfortunately, are still going to happen. There are estimated to be 2 million families facing foreclosure in the next year. So continued resources, both through the NFMC program and through HUD counseling, are critical. Mr. Gutierrez. Is there any particular requirement under the law that before someone can receive a reverse mortgage, they must receive counseling? Ms. Holston. I am sorry, could you repeat the question? Mr. Gutierrez. Is there any particular requirement in the law that someone receive counseling before they receive a reverse mortgage? Ms. Holston. For our HECM program, yes, sir. Mr. Gutierrez. And will there be any money in the budget in the immediate future for that kind of counseling? Ms. Holston. At this point, if we don't receive an appropriation in 2012, no. Mr. Gutierrez. So there won't be any money, but it is a requirement. Ms. Holston. That is right, sir. Mr. Gutierrez. So senior citizens would have to acquire the counseling? Ms. Holston. Senior citizens would have get to get the counseling, because it is statutory, but there are no funds in the budget for that. Mr. Gutierrez. It seems to me a rather complicated--I have seen them on TV, and I understand why people would want to access the equity in their home. At other times, it would probably be easier just to sell your home, but you might not be able to sell your home. What do you think, Ms. Fitzgerald? What do you think the impact will be of not having money for senior citizens? Ms. Fitzgerald. One big impact is going to be an increase in scammers, so both NeighborWorks and HUD have done a lot of work to try to prevent loan scams, mortgage scams. Many of those folks who were out doing predatory and subprime loans 5 years ago are now in communities trying to really strip equity out of senior citizens. And we have several cases where those scammers know that a person is in a health crisis or needs to fix a leaky roof or something and just doesn't have the income to do it, but has the equity, and they will turn around, scam them, charge them, sometimes actually taking title to their home, which they can't get back. So having money for counselors so that we can all tell people, here is a safe place for you to go so that you can be protected from these shysters. Mr. Gutierrez. Thank you. My time has expired. Mr. Hurt [presiding]. Thank you, Mr. Gutierrez. I will yield myself 5 minutes. I was hoping to hear from each of you on the question of the Office of Housing Counseling. It sounds to me from your testimony and from what I have read that that office has not really gotten up and running yet. I would like to know about how effective you think that will be in reaching more people with less resources, and is the future for this office viable? Ms. Holston. Thank you, sir. Last year when we realized that we would not receive any additional funds, we quite frankly changed our focus. But we have since--at that point, we had a plan established, and we have since been working with the appropriators to put that in play. An Office of Housing Counseling would allow us to actually target housing counseling activities. We could strengthen our oversight. We could provide a more directed program to assist families in not only pre-purchase but the full range, the full gambit of housing counseling services. Mr. Hurt. When you say ``target the services,'' what do you mean? Ms. Holston. That means that the HUD program actually provides a full array, as you know, of housing counseling services, allowing each locality, each area to target specific services or to develop a tailored approach to housing counseling. So that if there is a community that actually needs two types of services more than others, they can provide those--it's up to them. Mr. Hurt. So it is not necessarily prioritizing counseling among the people you are trying to serve; it is really just trying to identify the needs? Ms. Holston. Yes, sir. Mr. Hurt. Can you submit to this committee a report of where you all are in the planning for this office at this point? Ms. Holston. We intend to have a plan together within 60 days, a reorganization that shows the Office of Housing Counseling. Mr. Hurt. Maybe we can just skip to Ms. Cackley, if you could answer that question as it relates to this Office of Housing Counseling. What will it be providing us that we didn't have before and especially in the context of the fact that we are really in bad financial shape here in Washington? Ms. Cackley. We have just started looking at the Office of Housing Counseling more specifically so we haven't done direct work on it, especially because it is still so much in the process of being stood up. But we expect to be looking much more carefully at what the counseling office will do in the near future as part of our ongoing work, looking at issues. Mr. Hurt. But you all have looked at other programs, and I am sure that the inclusion of this office in the Dodd-Frank bill was well-intentioned, but I guess my question is, what will it be doing that the current structure does not provide for? Based on what you all have found, is there a need for it? Ms. Cackley. What we--we have not yet tried to look into the distinctions that this office will make in terms of how they will differ from what came before. Our understanding in talking to HUD officials is that they are reorganizing from within. So we have been waiting to hear what their reorganization plan is, and then we will be able to give you a better answer in terms of whether it makes sense or not. We are just not at a point where we have gotten enough information to tell you. Mr. Hurt. All right. And this brings me to my last question really for Ms. Holston and Ms. Fitzgerald. When you are faced with obviously diminished resources coming from Washington and from the appropriators, how do you target your counseling? Can you only provide enough funding for so much, that is, you hit a threshold, or are you able to determine what the people who need it the most, that is the priority? Is there a mechanism, some sort of measurement that allows you to prioritize the counseling, when we all know that we are not going to be able to provide as much as we would like? Ms. Fitzgerald. In the NFMC program, we are required to look at the areas of greatest need. Given how much the foreclosure crisis has expanded across the country, that does include a large portion of the country, but we make sure that most of the resources are going there. The Urban Institute study found that clients who went through NFMC counseling saved more on their loan modifications than those didn't. And that is because a counselor pushes back on the servicer and says, this family has to keep their car to make sure that they can get to the job so they can keep their job so they can pay you. If you total average savings by the number of clients who got loan modifications, that is an annual savings to the American taxpayer who owns a home of $560 million. So we are generating savings more than--far in excess of what the program for NFMC is costing. Mr. Hurt. Thank you, and my time has expired. Ms. Holston, do you have anything briefly you want to add? My time has expired. Ms. Holston. I would just add that in our last round of funding, we directed our funding to 100 major metropolitan areas with the highest need for--that showed a need for mortgage scam funding. Mr. Hurt. Thank you, Ms. Holston. My time has expired, and so I am pleased to recognize Mr. Watt, the gentleman from North Carolina, for 5 minutes. Mr. Watt. Thank you, Mr. Chairman. I understand we have only 4 minutes left before the end of the voting process, so I will try to expedite this. I want to direct this question to Ms. Fitzgerald and Ms. Holston. Some of us have raised questions in the past about directing all of the counseling funds through only one neighborhood organization, NeighborWorks, when there might be in some communities other agencies that can do this work more effectively or better. We had some discussions about that previously. Can you tell me what the current status of that is and if we are still directing all of the funds through NeighborWorks, or are there other agencies that are receiving counseling funds? Ms. Holston, maybe you can tell me that from the HUD perspective, and then Ms. Fitzgerald I am sure will defend her own agency. But I am not condemning what you are doing. I am just trying to find out, is this a rational approach to confine it to just one agency? Ms. Fitzgerald. What NeighborWorks does-- Mr. Watt. Let me hear from Ms. Holston first. Ms. Holston. One of the differences between NeighborWorks and HUD is that we provide the full spectrum of housing services and also eligibility. We provide 450 grants every year-- Mr. Watt. Wait a minute. You are answering a question I didn't ask, Ms. Holston. I am asking, is there a rationale for your directing all of your counseling dollars only through NeighborWorks as opposed to through other community-based organizations? Maybe Ms. Fitzgerald understood the question a little bit better. Ms. Fitzgerald. So under the NFMC program, by statute, Congress has directed us to give funds to HUD-approved intermediaries, State-housing financing agencies-- Mr. Watt. How many of those are there? Ms. Fitzgerald. Only 10 percent of the money goes to NeighborWorks organizations. By statute-- Mr. Watt. How many other organizations have been identified and approved by HUD? Ms. Fitzgerald. Over 1,500. Mr. Watt. And how is that working? That is all I am trying to find out. This is not a trick question. Ms. Fitzgerald. Great. Other parts of what NeighborWorks does are under a very different model. Under what we do for counseling, we try to cast as broad a net as possible. We have had 35 State FHAs, between 16 and 20 HUD intermediaries, and they have worked with over 1,600 grantees. Mr. Watt. So any organization that is out there complaining about this, we ought to direct them to HUD to make sure that they get preapproval, is that what you are saying? Ms. Fitzgerald. Exactly. Mr. Watt. All right. I thank you, and I yield back so I can go vote. Mr. Green. Madam Chairwoman? Chairwoman Biggert. Mr. Green is recognized for a unanimous consent request. Mr. Green. Thank you, Madam Chairwoman. I would by unanimous consent ask that a report entitled, ``The Role of Housing Counseling for Asian American and Pacific Islanders,'' this would be the AAPI community, be placed in the record, and my hope is that I will have an opportunity to speak when I come back with reference to this and other things. Chairwoman Biggert. Yes. Thank you. In case you are wondering why everybody is going in and out, if you see the lights up there, we had votes, but it is only one. So we were trying to keep going while we were running back and forth. So I just ran back. Ms. Waters from California is recognized for 5 minutes. Ms. Waters. Thank you very much. I am sorry I could be not be here, Madam Chairwoman. But I have a few concerns that I would like to try and address. I know that some actions have been taken recently against the Neighborhood Assistance Corporation of America; that is NACA. I have a letter here from NACA complaining about NeighborWorks' administration of NFMC and legal compliance. I ask unanimous consent to enter both of these documents in the hearing record. Can you tell me what actions have been taken against NACA and who took them? Ms. Fitzgerald. NACA has now filed a lawsuit against NeighborWorks America. NACA's lawsuit suggests that all of the funding of round five of the last round of NMFC, which is out in communities, should be pulled back and the entire process should be rescored for that. Obviously, that would put lots of homeowners at risk of not receiving foreclosure counseling. NACA has said that because they are concerned with our administration of the program. NACA did receive funds in rounds one, two, three and four. In round five, NACA at the time the round five awards were made was not receiving funds from HUD because HUD had them in a form of a suspended status due to some compliance issues. So HUD can speak to that better for that piece. Ms. Holston. NACA was approved as a HUD-approved housing counseling agency in 2008. In May of 2009, we conducted a site visit to investigate several themes that had come to our attention after monitoring about 14 of their branches and affiliates. On that day, we identified several compliance issues. We asked them to provide information. They did not do that. In December of 2010, we suspended their grant. And in August of 2011, they responded to us, and we have cleared their outstanding compliance issues and went forward and obligated their funds for the 2010 Housing Counseling Assistance Program. They had two grants, one in the amount of $700,000 and the other $200,000. Ms. Waters. Let me just slip away from that for a moment, if I still have some time left here on the clock. I want to get a feeling for, how successful are the counseling operations periods with loan modification work? Ms. Fitzgerald. They are very successful, given the servicer environment. And certainly, Ms. Waters, you have highlighted in the past some of the challenges that counselors have with servicers. So to the degree that the counselors--we have worked to get much better forms of communications with the servicers. The Urban Institute study that was performed on the NFMC program shows that a comparison group of NFMC clients who did not go through counseling performed worse. Ms. Waters. You have some numbers for loan modifications? Ms. Fitzgerald. Absolutely. Right. NFMC clients who got a loan modification saved $267 a month on their loan modification compared to those who didn't go through counseling, and that is because counselors know how to talk with the servicer-- Ms. Waters. How many successful loan modifications are you talking about? Ms. Fitzgerald. Probably a couple hundred thousand; I can get back to you with those numbers. Ms. Waters. And have you come to us with documentation of the obstacles that these counselors face working with the servicers? Do you have something to show us that we could use in trying to alleviate these obstacles that the counselors and others are facing in attempting to get loan modifications? Do you have any recommendations whatsoever? Ms. Fitzgerald. Yes, absolutely. In our most recent--we have had reports to Congress on the NFMC program. They all document some examples of reported challenges that counselors face in dealing with the servicers. So we have that, and there is a recent report that we are just producing, and we also-- because we also train counselors, we frequently have meetings with them to get really detailed feedback on what their challenges with the servicers are, and we are happy to share those with you. Ms. Waters. Any other recommendations relative to loan modification? Ms. Fitzgerald. That the servicers move more quickly. There is still a big a challenge with them taking months and months and months to give an answer to a counselor or a homeowner and to make sure that those that are outside Making Home Affordable are realistic modifications. Ms. Waters. How much fraud have the counselors experienced? Do you have any idea? Ms. Fitzgerald. They see a lot of loan scams from their clients. Ms. Waters. What do they do with those loan scams or fraud? Ms. Fitzgerald. There is a couple of things they do. NeighborWorks has worked with a broad consortium, including HUD and Justice and the Federal Trade Commission, and on our loan scam alert site, homeowners or counselors can put in a report that is then given to the lawyer's committee on civil rights who will follow up on that scam. They will also connect them with individual attorneys who can represent them in that case. Ms. Waters. What does HUD do about loan scams and fraud that come to their attention? Ms. Holston. We have actually just announced awards for our mortgage modification--our mortgage scam grant and--with regard to mortgages that were modified--11,000 mortgages were modified in 2011, and I am looking for other data for you. Ms. Waters. So you have grants that go out to nonprofits or others? Ms. Holston. Yes, ma'am. Ms. Waters. Legal Aid, is that one of them? Ms. Holston. Any HUD-approved housing agency was able to compete, and I will read a list of those successful grantees. Do we have those? I will get back to you with that information. Ms. Fitzgerald. And one of the big challenges is building awareness. So we have both worked on awareness campaigns. Obviously, the best prevention against scams is trying to help people not be scammed in the first place. Ms. Waters. But we have been through this for a long time now. We have been educating and counseling and the rip-off artists and the servicers and the bad folks are winning. They still win and people can't stay in their homes. We have to be more aggressive. We have to come up with some better policies, and I am seeking information and recommendations about what we can do because we are just not able to help enough people. Ms. Fitzgerald. Right. Through our database in the last year-and-a-half, 17,500 homeowners reported scams. The Federal Trade Commission actually does take some of that information when they have enough, and goes after Internet scammers, as do State AGs and various other enforcement agencies. So encouraging folks to report is also critical. Ms. Waters. Thank you. Chairwoman Biggert. Thank you. A further question, Ms. Holston. We are told that HUD is developing a risk model to evaluate the effectiveness of housing counselors and grant recipients. Could you update this committee on the status of-- on the development of this risk model with an explanation of the objectives of the model? Ms. Holston. Yes, ma'am. We have already developed the preliminary aspects of it. We have already identified the data sets that we need. We will be collecting it from our systems and other systems. We intend to launch it within the year. We will base the risk model on the performance review score, the level of grant funding, timely expenditure of grant funding, leveraging funds from lenders and other industry partners, agency performance, substantial complaints, the number of noncompliance findings and recurrence findings, directly approved or not, experience in the program, unspent funds, counselor compensation model. Those will be built into our system. It will take additional funding and we have approximated that cost to be about $800,000, and that it will take about 9 to 12 months for implementation. Chairwoman Biggert. So how would that make things better? Ms. Holston. It would make things better because we would have more targeted monitoring reviews. We would understand going in what the issues are associated with that housing counseling agency. We would be able to provide more technical assistance and identify those housing counseling agencies that are not in compliance. Chairwoman Biggert. Thank you. Ms. Cackley, in your research, what has GAO found about the effectiveness of homeownership counseling, and what have been the challenges in such research? Ms. Cackley. We have found that the study that has already been referred to that the Urban Institute did on foreclosure mitigation has been the best result in terms of effectiveness, shown the most effectiveness of all of that type of counseling. The counseling--pre-purchase counseling, when we looked at the literature, we found a more mixed bag in terms of some studies that did find positive effects and other studies that it wasn't that they found negative effects, it was that you couldn't find a particular effect one way or the other, and that has to do with the challenges which is the study design is very difficult. It is hard to get good data. It is hard to design a study in a way that allows you to identify the counseling as having an impact or not. You need to be able to have a control group. You need to be able to really identify the factors in a way that and control for them carefully. It is hard to do that, but it is not impossible. More studies are being done, and HUD is doing some of that work but it isn't done yet. Chairwoman Biggert. Can you work with HUD to offer recommendations for improvement? Ms. Cackley. We can certainly share with HUD our information on what we found in the literature, and we would be happy to do that. Chairwoman Biggert. Okay. Thank you. The gentleman from California, Mr. Sherman, is recognized for 5 minutes. Mr. Sherman. Thank you. Thank you for holding this hearing. I want to thank the witnesses for being here. What role is the housing and mortgage industry playing in financing or otherwise providing housing counseling? Should we be doing more to encourage private industry participation, housing counseling efforts? Ms. Fitzgerald. Yes. It is-- Mr. Sherman. Okay. That is the answer to the second question. What is the answer to the first question? What are they doing now? Ms. Fitzgerald. In a very inconsistent and ad hoc way as far as providing support, they do in certain areas. However, in general, they are not--despite conversations by many, many HUD intermediaries, they have not adopted a fee for service. We know that they save money, usually up to $20,000 to $35,000 if their property--if their loan doesn't go through foreclosure. Paying a counselor $500 or $700 to help make sure that happens is a very cheap proposition, but time and again, we haven't had any success there, and that would save the taxpayers money. Mr. Sherman. Although, does the servicer have the option to do that on behalf of what might be dozens of people who own that particular home mortgage? Ms. Fitzgerald. It would seem that for the relatively de minimis amount of money that we are talking about, their legal team could figure out that. We have evidence that shows that this makes a better loan, that there is lower redefault. They will pay someone $500 to just go find a customer, but they won't pay a counselor $500 to help the family work through a budget. Mr. Sherman. You say they pay $500. I am talking about the mortgage servicer. It is not the lenders. The problem that we have here is you are describing what would be logical if you had one decision-maker acting for the benefit of the lender. The problem is we have 20 lenders owning a single mortgage and no one can act logically on their behalf. The servicer can't act on their behalf, only pursuant to the existing agreements that all 20 mortgage lenders who are participating in that mortgage have signed on to. We need in Congress to provide that servicers, regardless of what contract they have signed, have the right to spend the lender's money, in this case, as you say, $500 or $700 to provide this counseling if it makes sense. Other than that, you basically are criticizing a ship for careening in the water illogically and harmfully. There is nobody with the power to steer it, as far as I understand. Do either of the witnesses have a comment on that? Ms. Fitzgerald. I would just like to say the investors have said that the servicers can choose to pay for counseling but they have to do it out of the fees that the servicer is getting to manage that. Mr. Sherman. We can--any one of us here in this room could pay for the servicing out of our own salaries, and a few of us make charitable contributions to do a little bit toward that, but to say that the servicer should go spend $700 of its money for an act designed to benefit the banks or the homeowner asks them to be charitable, and as you explained, part of the beneficiary of the charity goes to these big banks who are not on my personal charity list. Let me move on. I would like to explore with some of our colleagues here whether the servicer should be able to do what you want them to do but to charge the banks for it. To say that it should come out of the servicing fee ignores the fact that their whole fee on that mortgage, absent the default, might be $500 for the year or less. I understand, though, that research on the impact of housing counseling is under way at HUD and Fannie Mae. What do you believe would be the best ways to measure the impact of housing counseling on clients? Perhaps I could hear from either of the other two witnesses. Yes, Ms. Cackley? Ms. Cackley. The best way to--could you, please-- Mr. Sherman. They are studying the effect of housing counseling. What do you believe would be the best measures of whether that housing counseling is doing a good job? Ms. Cackley. The best measure would be if the study was designed to be a randomized sample so that one could effectively be able to tell--in other words, there are some people who get the counseling and some people who don't, and one can tell truly what the impact is of the counseling. The hardest part of doing this kind of research is being able to make those distinctions. Mr. Sherman. So you would have to pick from a pool of 1,000 borrowers, 500 at random who would get free counseling, because if you just look at those who sign up for it, that is not randomized? Ms. Cackley. That is right. Mr. Sherman. I believe my time has expired. Thank you. Chairwoman Biggert. Thank you. Mr. Hurt, you are recognized. Mr. Hurt. Thank you, Madam Chairwoman. I just had one question that I would love to hear Ms. Holston and Ms. Fitzgerald speak to if they can, and it may be something that is kind of hard for HUD to speak to if you are not at the ground level dealing with these counseling sessions. But I would love--as you know, we in this committee are struggling with the aftermath of--and as a country, of course, we are struggling with the aftermath of what happened in 2008 or what culminated in 2008. I was wondering if you could speak to, from the perspective of one who deals with folks who have gotten themselves into a situation that has gone bad on them or could potentially have gone bad and they end up losing a tremendous amount of wealth as a consequence, if you could speak to the underwriting practices that you all have found in the last couple of years that maybe we need to be focused on in terms of making sure this doesn't happen again. I know it is probably beyond your jurisdiction, but I would love to have your comments on that. Ms. Fitzgerald. At NeighborWorks for 30 years, we have always focused on sustainable mortgages for families, and our focus is on low- and moderate-income families, and we would say that 30-year fixed mortgages for most of those families that are underwritten at a DTI of 31 percent at the front end is a good mortgage. One of the things that happened certainly was front-end debt-to-income ratios that were way too high and families encouraged to be in that, and that is just not a sustainable solution, particularly, again, for a low- to moderate-income family. Another thing that happened is teaser ARMs, all of those kind of things that underwrote. So somebody got an ARM where the rate was 1.99 percent for the first year, and then bumped up 2 percent a year for 3 years. But the underwriting at that point only underwrote whether they could afford a 1.99 percent rate, not whether they could afford what the payment was going to be in 2 years, and most families don't see their incomes double or triple in a 2-year period. So those are two really egregious things that happened that we certainly hope would never show up again. Ms. Holston. I would think that good, solid housing counseling, where a family is able to learn how to budget and understand what the responsibilities of homeownership are going to be. I know I am not speaking directly to your underwriting question, but a good understanding of what homeownership is about, how to qualify for a 30-year fixed-rate mortgage, and I think that is probably the basis for it. Mr. Hurt. Thank you, Mr. Chairman. Chairwoman Biggert. Thank you, Mr. Hurt. The gentleman from Texas, Mr. Green, do you have--you have 5 minutes. Mr. Green. Thank you, Madam Chairwoman, and thank you for allowing me to be part of the hearing. I thank the witnesses as well. I am fortunate in that I represent a district that has the ballot printed in three different languages. It is in English, it is in Spanish, and it is in Vietnamese. I think there is a reality that we sometimes don't see with reference to the linguistic challenges that we have in our country, people who are lawfully here and who do need assistance, which is why I was proud to submit to the record the national capacity document entitled, ``Role of Housing Counseling for Asian American and Pacific Islander Communities.'' This organization has done a stellar job. It is in 17 States, has more than 100 community-based organizations and individuals working with it, and they work to help the AA/PI community. I am in support of what they do and I am proud to submit their document for consideration. I am also very much concerned about the loss of the $87.5 million. There are people who can benefit from this individually and families, but more importantly, the country benefits. Statistical information has been recorded indicating that we actually save money when we have people receiving this counseling, and my suspicion is that at some point, we would move into some sort of refinancing of many of the loans that are with the GSEs, Fannie and Freddie, through FHFA, and if this is done, many persons who could benefit from this and help the country benefit by virtue of not going into foreclosure because this counseling is done from the purchase through foreclosure mitigation, first-time home buyer, many of these people who could benefit, many persons who could benefit, will not benefit simply because of some of the linguistic challenges, and these organizations perform a meaningful function. This did not happen by accident that they are doing what they do. They have to prove and demonstrate that they would be a help. So I am supportive of what they do and wanted to make sure that we got this in the record. With reference to the counseling, let me just ask a question. I know you don't have the empirical evidence today because a study is being performed, but can you give some anecdotal evidence--we take a lot of anecdotal evidence, and if you have anecdotal evidence, that has become very important to this committee, and I would ask that you share anecdotal evidence with the committee if you have such, and it doesn't matter to me who shares first. Ms. Fitzgerald. In addition to the Urban Institute report we have spoken about, there is a--the Peter Zorn report from the early 2000s that Freddie Mac funded and is still probably one of the state-of-the-art reports, and that report showed-- and it used Freddie Mac data--that there was a 34 percent reduction in delinquencies if there was counseling. So there has been evidence out there. The one thing that hasn't happened is this random blind study, but that is both incredibly expensive and very difficult. On a local basis, we have organizations that have done very strong studies showing that counseling has brought an increase in credit scores and they look at a FICO score for pre-purchase education and counseling, and over 6 months or a year, there is an increase in the FICO score. So there are several studies and maybe Ms. Holston can speak more about them. Ms. Holston. The studies that we are conducting now will not be completed until next year, but preliminary findings from a recent study by ABT Associates shows that the vast majority of homeowners who received foreclosure housing from HUD- approved counseling agencies, and that is 84 percent, continued to live in their homes 18 months later and more than two-thirds were current on their mortgages. Mr. Green. Thank you, Madam Chairwoman. My time is about up, so I will yield back. Thank you. Chairwoman Biggert. The gentleman yields back. I might note, Ms. Holston, that we really do want more tracking and comments on the discussion draft to address the oversight. And with that, I would recognize the gentleman from Illinois for 5 minutes. Mr. Dold. Thank you, Madam Chairwoman. Ms. Holston, this question for you to start out with, if I may. Prioritizing funds obviously is something that I think is very important certainly for our government as we try to make them go and stretch further and that they get to the area of greatest need. Can you tell me how HUD right now is determining how the funds are being distributed? Are they being distributed--and I apologize if you covered this while I was voting--but are they being distributed on the greatest need first or is it more by geographic region first or how is it really being disseminated? Ms. Holston. Because we offer a full range of housing services--housing counseling services, we actually develop a NOFA, send it out, and it is on a geographic basis, but we also set aside funding. We have--this last year, we actually developed a NOFA and put $1 million for scam elimination. So, at this point, it is geographic primarily. Mr. Dold. Okay. I appreciate that. In your testimony and other data we read that since 2005, between 2005 and today, over 4.1 million households have received individual foreclosure prevention counseling and more than 150,000 have participated in homeowner default education workshops which I recognize represents a little over a third of the HUD housing counseling activity between 2005 and 2010. Do you know how many of these households were able to stay in their homes as a result of housing counseling? Ms. Holston. I know for those who received housing counseling in 2010-- Mr. Dold. Okay. Ms. Holston. --84 percent continued to live in their homes--this is foreclosure counseling, 2005 forward. Just a moment. Let me get the exact figure. Mr. Dold. Not a problem. Ms. Holston. Could we get back to you, please, sir? Mr. Dold. Absolutely. Again, it--I believe, again, as we talked about in the opening statements it is important that we are able to reflect how well things are going. We want to make sure we can highlight these things so we can try to make sure that when it comes time for the appropriators to make some difficult decisions, which we know are not going to be received by many well, that we can highlight programs that are working and working well. Can you give me just your own thoughts or if there are ones that you believe--and I will ask this both of Ms. Holston and Ms. Fitzgerald and then we will try to get down another one to make sure we are not leaving everybody out--in terms of the role that you believe that housing counseling should play in preventing another foreclosure crisis? Obviously, we are in the midst of a foreclosure crisis right now. What should the counseling do in order to try to prevent another foreclosure crisis from happening again? Ms. Holston. In many instances, a housing counselor is the best friend of a homeowner going into foreclosure. So a housing counselor can help that family secure a modification. They can provide comfort to them as they go forward, giving them options as to the best route to take. In terms of what we can do as housing counselors to avoid foreclosure or to avoid this mortgage crisis, better and more housing counseling earlier in the process, so some families will decide perhaps not to purchase, and others will know what the responsibilities of homeownership are before they purchase their home. Mr. Dold. Ms. Fitzgerald? Ms. Fitzgerald. Absolutely. The best prevention against foreclosure is an educated consumer who understands the responsibilities they are getting into, can choose a mortgage product, and also understand the impacts of other credit that often gets offered to them after they become a homeowner and how to manage that. And we know that for the last 20 years, homeowners who have gone through that process early enough--not the day before the closing table--are more successful. If both spouses lose their jobs, obviously things in life happen that counseling can't prevent, but it makes them much more likely to be sustainable. Ms. Holston. One more thing. I also think it is important to have a third-party counselor so that you have a non-involved party in the deal, a counselor giving advice and guidance. Mr. Dold. And I appreciate that. I guess, obviously, we would love to be able to have some sort of counseling before they make any purchase decisions because they might not be able to, but in the reality, that might not be realistic. Ms. Fitzgerald, you talked just a moment ago about, the earlier the better. Do you know the percentage in terms of the counseling you see beforehand, how close to the actual purchase of a home? I know my time has expired. Ms. Fitzgerald. Certainly in our network we recommend that it is at least 90 to 180 days beforehand, and our organizations work really hard to get that message out early to customers to do that, but I don't have a percentage. Chairwoman Biggert. The gentleman's time has expired. The gentleman from North Carolina. Mr. McHenry. Thank you, Chairwoman Biggert. Ms. Holston, does HUD use a competitive method to, or a merit-based system to award counseling funding? Ms. Holston. Yes, sir. We actually issue a NOFA and open it up for any HUD-approved housing counseling agency to compete. They submit their proposals. We rate and rank them. They have to receive a fundable score. And then based on the availability of funding and formula, it is determined how much their grant will be for. Mr. McHenry. Okay. Ms. Fitzgerald, in terms of NeighborWorks, do you have metrics for success, in terms of your operations? Ms. Fitzgerald. We do two different things. On the counseling side for NFMC when we have a competitive process, we had the Urban Institute give an independent evaluation which has shown that the program actually works. Again, 70 percent of the clients who enter are more likely to cure their foreclosure than clients who did not go through that program. We require reporting from the counseling agencies on a quarterly basis on what is happening with them. Mr. McHenry. And so you determine if these intermediaries are actually spending the funds appropriately? Ms. Fitzgerald. We do substantial on-site and off-site compliance. We do on site to those who receive 64--we do a risk rating system that we have had in place for 3 years, and in doing that, we made sure that we are going to the folks who get the largest amounts of funding, and we make sure that they are spending that money well in a variety of ways. Mr. McHenry. So how do you determine success rates for these--for counseling, how do you determine success rates? Ms. Fitzgerald. One of the challenges for foreclosure counselors is that because servicers take so long still to handle a situation, often 9 months--the most recent data shows that the average loan has been in foreclosure for 599 days. That means there are 599 days that the homeowner doesn't necessarily know what is happening, nor does the counselor. So the counselor is doing everything in their power to help solve that, but often they are at the mercy of servicers who are very backlogged. But a success, they are always working to, if at all possible, get that homeowner a loan modification, and if they can't, then helping them exit in a good way for that family. Mr. McHenry. Okay. So the eligibility of each applicant of the national foreclosure mitigation counseling is based on their approval by HUD, correct? Ms. Fitzgerald. The eligible applicants, by statute, are HUD-approved intermediaries, State housing finance agencies, and NeighborWorks organizations. Mr. McHenry. Okay. So how do you become HUD approved? Ms. Holston. Your question is how to become a HUD-approved housing counseling intermediary? Mr. McHenry. Yes. Ms. Holston. I will get back to you in just a second. Mr. McHenry. That is fine. So what is the average time and cost to become one of these intermediaries? Ms. Holston. Three to 6 months. Mr. McHenry. And cost? Ms. Holston. And the cost is processing. There is no cost associated with it. There is no cost. They submit an application. We review the application and approve it or disprove it. Mr. McHenry. Yes, time has cost. So if you have five staffers putting something together to fill this paperwork out, their salaries actually have a cost. That is what I am interested in. Ms. Holston. We will have to get back with you and compute that cost. Mr. McHenry. Okay. I would be interested in that because we do want qualified counselors, but if the hurdle is so difficult to become one of these intermediaries, then you need to look at your processes so that reasonable groups can go through this process. So, with that, I am obviously concerned that we do have foreclosure counseling and it is done well, and the challenges are for determining success and that was to you, Ms. Fitzgerald. If you--no two families are the same. No two family situations are the same. No two foreclosures are exactly the same. So determining success in counseling is a challenge because you have some folks for whom there can be a remedy. Let's say they have a job. It is much easier for them to get something worked out than those who are not employed; is that right? Ms. Fitzgerald. Typically, yes, unless there is a local program that would help those folks, yes. Mr. McHenry. All right. Thank you. Chairwoman Biggert. The gentleman's time has expired. I would like to thank the first panel for your insights and the information that you have given us, and I would note that some members may have additional questions for this panel which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses and to place their responses in the record. Again, thank you so much, and we will now turn to Panel II. Thank you. Welcome to the second panel: Mr. Peter H. Bell, president, National Reverse Mortgage Lenders Association; Ms. Candy Hill, senior vice president, social policy and government affairs, Catholic Charities USA; Ms. Debra Olson, interim executive director, DuPage Homeownership Center and DuPage County board member, on behalf of the National Association of Counties. And I would like to say a special welcome to Ms. Olson who is from the district and from the State of Illinois. Ms. Olson. Thank you for the invitation. Chairwoman Biggert. And then Mr. Raul Raymundo, chief executive officer, The Resurrection Project. Thank you all for being here, and again, for the panel, without objection, your written statements will be made a part of the record, and you will each be recognized for a 5-minute summary of your testimony. We will begin with you, Mr. Bell, and you are recognized for 5 minutes. STATEMENT OF PETER H. BELL, PRESIDENT & CEO, NATIONAL REVERSE MORTGAGE LENDERS ASSOCIATION (NRMLA) Mr. Bell. Madam Chairwoman and members of the subcommittee, thank you for convening this hearing to look into the important issue of housing counseling. This subcommittee, including members from both sides of the aisle, has been consistently sensitive to reverse mortgage issues and has continually taken steps to improve and enhance FHA's Home Equity Conversion Mortgage (HECM) program. For that, we are very appreciative, as are the 660,000 senior households who have utilized the HECM program. I would like to focus today on one aspect of housing counseling that is a relatively small niche but a very important one for those who are affected. This is counseling for older homeowners who are contemplating obtaining a reverse mortgage or for those older homeowners who already have a reverse mortgage and find themselves facing new financial challenges. The equity accumulated in a home represents the largest component of personal wealth for many middle-class households. Typical retiree households might have one or two incomes from Social Security, a modest pension, perhaps some savings and low-yielding fixed-income instruments and nowadays perhaps a diminished 401(k) account. The equity they have built up in their home is by far their greatest asset and an important resource for funding their future. Analyzing how a reverse mortgage might fit into the picture, however, is not an easy task, particularly for older homeowners who might not have been active in financial markets in recent years, for newly-widowed individuals whose loss of their spouse's Social Security creates financial insecurity, for seniors struggling to make ends meet, and for those trying to plan ahead to maximize their resources and sustain their financial independence. When Congress enacted the HECM program back in the 1987 Housing Act, it recognized this and made mandatory counseling a critical component of the HECM program. Counseling is a very effective consumer safeguard, and as a result of that, we have seen very few problems with the HECM program over the years. Reverse mortgage counselors are employed by HUD-approved, community-based and nationally designated nonprofit housing and credit counseling organizations. Each individual counselor must be qualified by passing a HUD-administered exam and must meet continuing education requirements. The result of this has been the development of a robust network of committed counseling organizations and qualified individuals who deliver counseling through face-to-face sessions or via telephone, depending on each client's personal choice and mobility. On top of the fact that all seniors considering a reverse mortgage must undergo counseling before they can actually even apply for a HECM, counseling agencies are required by HUD to perform such counseling at no cost whatsoever to any clients whose income is below 200 percent of the Federal poverty level. Fifty-six percent of HECM clients report one of the most major counseling agencies fall under this threshold. So the issue we face today is, how will these mandates be met? How will counseling continue to be available to all HECM borrowers? We face a legal mandate to make sure the counseling is provided. We face a moral mandate to make sure that this counseling is equally available to those with more limited means who are unable to pay for it up front. In the earliest years, the AARP foundation provided technical assistance and support for HECM counseling. In more recent years, their work has been taken over by NeighborWorks and the National Council on Aging. Each of these organizations has made a very significant contribution towards furthering the quality and availability of counseling by training, tracking, collecting and analyzing data, and providing technical education for the counseling community. One particular area that has emerged in recent years, due to the economic downturn--and both NeighborWorks and MCOA are to be commended for stepping up to the plate on this issue--is providing remedial counseling to reverse mortgage borrowers who have had setbacks in their financial affairs and have had difficulties meeting their obligations to pay property taxes and insurance. As a result of this remedial counseling, a high percentage of households facing this situation have been able to be put on a repayment plan to reimburse the lenders' advances, protecting FHA from possible payouts for claims while preserving the homeowners' ability to continue living in their home, a win-win solution for all involved. All in all, the cost of providing this type of HECM counseling for those who cannot afford it is small. The cost of not providing it would be very great. Thank you for the opportunity to appear here today. I would be pleased to answer any questions. [The prepared statement of Mr. Bell can be found on page 42 of the appendix.] Chairwoman Biggert. Thank you, Mr. Bell. Ms. Hill, you are recognized for 5 minutes. STATEMENT OF CANDY HILL, SENIOR VICE PRESIDENT, SOCIAL POLICY AND GOVERNMENT AFFAIRS, CATHOLIC CHARITIES USA Ms. Hill. Good afternoon, Chairwoman Biggert, and thank you to the subcommittee for having us here today. I am here representing Catholic Charities USA where I am the senior vice president for social policy and government affairs. Housing has always been a primary area of service delivery for Catholic Charities throughout its 100-year history, and is a major concern presently in our work to serve those in need and reduce poverty in America. We very much appreciate this opportunity to come before the subcommittee and provide input and data on the critical importance of housing counseling based on our experience as a national housing counseling intermediary for more than the past 10 years. With 38 of our agencies serving 26,429 individuals during the grant cycle of 2009-2010, we want to underscore the value of these services to so many in these challenging economic times. The important role that housing counseling services has played and continues to play in ensuring a stable housing market and safe, affordable housing for those who receive these services is immeasurable. These services are comprehensive and should not be narrowly directed only to foreclosure prevention. In fact, housing counseling assists with rapid rehousing prevents renters from losing their homes and addresses homelessness. It is essential that these services, which support individuals and families in need, be preserved. In fact, if it had not been for housing counseling programs, thousands more would have been vulnerable in the housing crisis. At the same time, it is incumbent on those who administer these funds to ensure the efficiency and effectiveness of these services without undue or unnecessary administrative burdens so that more funds go directly to those who need the services. For example, in Elmira, New York, the housing counseling program operates a first-time home buyer program. Four hundred families have purchased their first home through this program which is a partnership between Catholic Charities and the City of Elmira. The program consists of intensive pre-purchase education and support. Successful participants complete 9 hours of some kind of education and workshop and approximately 7 to 10 hours of one-on-one counseling. Their housing counseling services are tailored to the clients' needs, not necessarily their wants. The success of the first-time home buyer program in part is attributed to the extensive pre- and post-education and support given by housing counselors, and the foreclosure rate for homes bought by home buyers in this program is under 3 percent. Stable housing is the goal for all those that we serve in our network. Housing counseling is an essential element of our housing services. Catholic Charities' programs uniquely reach those who are challenged by poverty and often turn to us as a last resort. However, I want to mention that the population that we see currently is not just low income. More and more middle-income individuals and families, including significant numbers of military families, are approaching Catholic Charities' agencies to receive housing counseling services. Catholic Charities continues to work for innovative ways to help people secure and maintain housing with the ultimate goal of helping individuals and families to achieve self- sufficiency. I highlight that for you that in my written testimony; I have reported on a number of local Catholic Charities housing counseling programs and the innovation and success that they have had. As you well know, funding for HUD's housing counseling assistance program was eliminated in the HUD Fiscal Year 2011 budget appropriation. However, funding for the National Foreclosure Mitigation Program was maintained at $65 million. While Catholic Charities USA recognizes that NeighborWorks America's NFMC program does important work related to foreclosure intervention, and in fact, 11 Catholic Charities agencies received grants from NeighborWorks, it is important that we highlight the fact that there is a difference between the two in that one is a program that addresses specifically foreclosure intervention and mitigation, while the other is a more holistic approach to housing counseling services which are crucial as it provides much-needed counseling to millions of families and seniors. With that, I would like to make a few recommendations to this committee. We urge you to make affordable and accessible comprehensive housing a priority and encourage local governments and private interests to do the same; invest in this critical housing counseling program and support comprehensive and innovative programs that allow communities the flexibility to meet local housing concerns; restore the $87.5 million in funding to the housing counseling program; and finally, ensure that all Federal programs, including these we discuss today, are effective and efficient, not overly burdened with layers of administrative oversight, but effectively overseen so that funding and services meet the needs of those individuals these programs have been designed to serve. Thank you. [The prepared statement of Ms. Hill can be found on page 81 of the appendix.] Chairwoman Biggert. Thank you, Ms. Hill. Ms. Olson, you are recognized for 5 minutes. STATEMENT OF DEBRA OLSON, INTERIM EXECUTIVE DIRECTOR, DUPAGE HOMEOWNERSHIP CENTER, AND BOARD MEMBER, DUPAGE COUNTY, ILLINOIS, ON BEHALF OF THE NATIONAL ASSOCIATION OF COUNTIES (NACo) Ms. Olson. Thank you, Chairwoman Biggert, Ranking Member Gutierrez, and members of the subcommittee. I appreciate the special invitation today. My name is Debra Olson and I am a DuPage County, Illinois, board member and a member of the National Association of Counties (NACo) community and economic development steering committee. I thank you for the opportunity to testify at this important oversight hearing. It is my privilege to represent NACo today, and we appreciate Chairwoman Biggert holding a hearing on housing counseling programs. NACo, the only national organization representing America's 3,068 counties, supports housing counseling programs which provide vital services to county residents, particularly in this stalled housing market and difficult economy. Low property values caused by foreclosed homes have led to a smaller tax base and budget shortfalls. HUD-certified counseling agencies help to ensure that county residents are getting accurate information and effective services, which can mean the difference between homeowners saving or losing their homes. These services are primarily offered free of charge, thanks in part to Federal funding. Empowering residents with information makes the process better for all involved. Counties know these services have prevented foreclosures and helped homeowners make better decisions in a process that can be confusing and overwhelming. This year, NACo published an issue brief on foreclosure, ``The Fall and Rise of Neighborhoods in Counties Across the Country.'' The brief notes the importance of having homeowners who are potentially facing foreclosure contact HUD-approved housing counseling agencies for assistance in working with their lender. In NACo's June 2008 survey of large urban counties, approximately 96 percent of the county officials responding noted an increase in home foreclosures during that year. Approximately 36 percent reported a 50 percent or more increase in foreclosures. Fifty-six percent of the officials reported a decline in housing values as a result of foreclosures, and 52 percent are experiencing revenue shortfalls, a result of either foreclosures or declining home values. DuPage County has experienced similar problems. Furthermore, according to RealtyTrac, Illinois has the 5th highest foreclosure rate in the United States, and DuPage County foreclosure rates, as a ratio of homeownership, rank 8 out of 102 counties. In DuPage, over 8,500 houses are in some stage of foreclosure. DuPage County has, for years, partnered with the DuPage Homeownership Center, DHOC, the only HUD-certified housing counseling agency providing comprehensive services in the county. DHOC has a national reputation for excellence. We have received numerous awards, and our innovative programs have been profiled in six national best practices publications, and as the volunteer interim executive director, I can assure you we believe in, and welcome, strong accountability. DHOC provided services to over 2,500 families in Fiscal Year 2011. Of those, 833 households were in some state of default, many more in imminent threat of default. Though DHOC has received NeighborWorks grants, as well as HUD grants, NeighborWorks round six is not guaranteed and the significant cut in HUD funding is jeopardizing DHOC services for these thousands of DuPage residents. Perhaps now more than ever, there is a need for comprehensive, federally-funded housing counseling services. More than 85 percent of DHOC's foreclosure clients report they never had any home buyer education. Pre-purchase counseling and reverse mortgage counseling have been defunded, and local agencies may be forced to charge cash poor seniors for these services which are required by law. Foreclosure prevention counseling has proven to be highly cost-effective. According to a report in Mortgage News Daily, the average cost of a foreclosure is $77,000 while the average cost of foreclosure prevention is $3,300. DHOC helped 279 families prevent foreclosure in Fiscal Year 2011 alone, saving lenders, governments, communities and homeowners in crisis over $20 million. Hundreds more DHOC clients are in process. HUD's housing counseling programs provide accessibility to financial education for all, creating more responsible renters and homeowners. HUD's housing counseling programs impose standards of certification on participating agencies resulting in professional, accurate, reliable information for renters, home buyers, and families in crisis. HUD requires accountability measures such as independent third party audits, biennial on-site performance reviews, and uniform reporting of performance outcomes. HUD's competitive grant process ensures participating organizations will meet and exceed mandated goals or lose funding. DuPage County applauds strict enforcement of the standards of certification and accountability measures to give Congress and consumers confidence that their tax dollars are being spent wisely. We support requiring stringent compliance with national industry standards for home buyer education and counseling for grant awards. As a government official myself who looks for the most effective and efficient use of tax dollars, the cost of housing counseling is a fraction of the cost of a foreclosure. Defunding housing counseling is counterproductive to long-term resolution of the economic problems we face today and prevention of recurrence in the future. I implore you to improve HUD's programs, not gut them. Thank you for this opportunity and I welcome any questions. [The prepared statement of Ms. Olson can be found on page 104 of the appendix.] Chairwoman Biggert. Thank you. Mr. Raymundo, you are recognized for 5 minutes. STATEMENT OF RAUL I. RAYMUNDO, CO-FOUNDER AND CHIEF EXECUTIVE OFFICER, THE RESURRECTION PROJECT Mr. Raymundo. Buenos tardes. Good afternoon. I am honored to be here. The Resurrection Project is a community-based nonprofit serving primarily Latino neighbors in Chicago's west side and the City and suburbs. The Resurrection Project is also a proud affiliate of National Council of La Raza and the National Association of Latino Community Asset Builders, for which I am the current board chair. Thank you, Chairwoman Biggert and Congressman Gutierrez, for allowing me to be here to talk to you about the impact of HUD counseling support that we have received over the past few years. In 1990, The Resurrection Project began with a $30,000 seed capital investment from area parishes. Today, we have leveraged more than $200 million in reinvestment through our comprehensive community development efforts, a cornerstone of which is housing and financial literacy counseling. As a HUD- approved agency, we empower families with the knowledge about the right way to purchase a home and arm them against predatory lenders. Last year, The Resurrection Project counselors served over 2,700 families through pre-purchase, foreclosure, and basic financial literacy education. Many of these families successfully purchased a home, improved their credit scores, and opened savings accounts. The families we serve on the southwest side of the City and western suburbs have been hit hard by this great recession. Communities of colors have lost far more wealth in this great recession than the general public as a result of banking and what used to be a secure investment, owning part of the American dream through homeownership. The counseling support we provide to families is often the only thing that helps with the soft landing that many of these families are experiencing. When they are foreclosed on, it does not only impact their finances but also the entire psyche of the family. I cannot imagine how much worse things could have been for our communities had we not received counseling support over the past 5 years. In a survey of HUD-certified counseling agencies conducted by Housing Action Illinois, several agencies indicated that cuts would force them to lay off staff or see fewer clients. Two agencies anticipated they would be forced to shut down completely. We know that counseling alone does not revitalize neighborhoods, but again, it is a cornerstone for comprehensive revitalization efforts. Currently, there is an incredible excess of inventory of foreclosed housing units in the market. Many of the strategies being considered across the country to reduce this inventory is supply driven, REO disposition of properties, short sales, and donations. The key to reducing this inventory should be demand driven as well. In other words, we need well-prepared buyers, well-qualified buyers, and well-educated buyers. It is shortsighted to think that preparing the next generation of home buyers will happen overnight. It is going to take some time to build this foundation, not just repair the old. Let me give you an example of the foundation I am speaking about. Orelia Abeja, a single mother of four, came to The Resurrection Project in 2000 with a dream of owning a home, but settled into one of our affordable apartments to give her the time and space she needed to save money. Over the next 10 years, Ms. Abeja earned a bachelor's degree and eventually a master's and became a schoolteacher. In 2006, she began receiving one-on-one counseling to help realize her dream of owning a home. After a few years of budgeting, saving, and learning the ins and outs of homeownership, Ms. Abeja purchased a single family home, and in 2009, she and her family moved into a 3-bedroom home. The Resurrection Project and similar HUD-approved counseling agencies across the Chicagoland area continue to help families like the Abejas work to manage steps towards sustainable homeownership and a better life. Without this funding, our neighborhoods will suffer. Home buyers like Ms. Abeja will not be able to receive the type of high-quality individualized education to help prepare them for sustainable homeownership and prevent future foreclosures. HUD counseling is crucial right now in order to jump start a demand market to prepare families like the Abejas, often first-time home buyers to buy a home. This demand will, in turn, spur local economies which will create much-need jobs, which will, in turn, help revitalize local neighborhoods. Therefore, I urge Congress to restore the housing counseling programs funding to the Fiscal Year 2010 level of $88 million. Secondly, and finally, I urge Congress to invest more in counseling agencies that are culturally and linguistically sensitive to communities that have been hit hardest by this great recession and this housing crisis. [The prepared statement of Mr. Raymundo can be found on page 114 of the appendix.] Chairwoman Biggert. Thank you. We will now move to questions and members will have 5 minutes to ask the questions and we will start with that. This question is really for everyone. While helping families, especially those who are in foreclosure counseling, what are the greatest challenges that counselors face? Just one or two from each of you, so we get your top challenges that what you see. Some of the Panel I witnesses mentioned problems with servicers, for example. We will start with you, Mr. Raymundo. Mr. Raymundo. Yes. I think that continues to be a serious problem, that servicers are taking a very long time. We heard earlier in the panel the length of time that it takes them to respond to families, to the counselors, and I think there needs to be some kind of legislation that forces, if you will, servicers to act as one instead of many in terms of providing mitigation as quickly as possible to our families. Chairwoman Biggert. Thank you. Ms. Olson? Ms. Olson. I would agree with the assessment that working with servicers is perhaps the most difficult part. Furthermore, I would say that scams have definitely been a problem, and one of the problems that nonprofit agencies have is that we don't have a lot of dollars for public relations (PR). We offer these highly professional certified counseling services, but don't have the dollars for PR in order to get the word out there that we offer these services. So scammers who have lots of money to put toward PR have their name out there and promise to help. I think that is another problem that we face as an agency that would be helpful to--more PR dollars would be helpful, I think. Chairman Biggert. Ms. Hill? Ms. Hill. I would echo that servicers are a great challenge for us, but I would also say that the-- Chairman Biggert. Could you pull the microphone closer to you? Ms. Hill. --continued economic downturn, so in families where unemployment is an issue or a loss of job, where it has been over the course of more than a year, makes it much more difficult to mitigate a situation where foreclosure is imminent because of the lack of funds to actually pay the mortgage. So I would say both the servicers and the continued economic downturn for this length of time are a great challenge for us. Chairman Biggert. Thank you. Mr. Bell? Mr. Bell. Yes. Our clientele is slightly different because they are the elderly, and there is a different set of issues there. But when it comes to mitigation counseling for the seniors who have problems, one of the challenges has been that the servicers possess personal nonpublic financial information that would be very helpful to the counselors, but because of privacy laws, it is challenging for them to be able to share that with the counselor, which would help make a much more informed counseling session. We have been working on some efforts to overcome those, but it would be helpful if the Congress would look at that and perhaps engineer some opportunities within the privacy laws to allow the servicers to make such information available to the counselors. Chairwoman Biggert. Mr. Bell, what are the losses associated with reverse mortgages to FHA over the last 5 years? Mr. Bell. Historically to date, the program has been run on a revenue-neutral basis. The way this has been maintained is that each year in budgeting for the program, FHA and then OMB project out how the book of business might perform based on its projections of future home values, and then they have made adjustments accordingly. Over the past couple of years, they have reduced the benefit that seniors can get out of a reverse mortgage. Two years ago, they reduced the amount by 10 percent across-the- board and, for the current Fiscal Year, from 1 to 4 percent, depending on the age of the borrower. Also for the current Fiscal Year, they increased the mortgage insurance premium, the annual mortgage insurance premium, that is paid to keep the program on a revenue-neutral basis. So, to date, there has not been any real loss from the HECM program. Chairwoman Biggert. There was a story not too long ago about some seniors who had gotten a reverse mortgage, and they were given a lump sum instead of like a monthly or whatever, and they spent it all. Then, of course, they didn't have the money to pay the property taxes or anything. Is this happening still, or is this something that has changed? Mr. Bell. A borrower under the HECM program has the choice of having a fixed-rate mortgage or a variable-rate mortgage, and they have the choice of receiving the money all at once as a lump sum or taking it out in fixed monthly payments or setting it up as a line of credit and drawing it down as needed. The fixed rate requires a full draw. The reason for that is that a lender can put out the money today because he knows the cost of funds if somebody takes it all at once. If they want to take it out a little bit at a time, they must choose a variable rate. By and large, in the last couple of years, with the financial uncertainty, seniors have overwhelmingly chosen the full draw fixed rate to have the security of the fixed rate. So that is in fact going on in more than half of the reverse mortgages that are made. In a large percentage of those cases, the other reason for taking out the full amount up front is because they are paying off existing indebtedness on the property, and they require all those funds for it. However, if a senior does not need all the money up front, they are well advised to consider the variable rate, which gives them the other options. Unfortunately, that is not often what they choose, but that is why the counseling once again becomes so critical, to help them make that determination. Chairwoman Biggert. So the housing counseling should really make sure that they understand taking all the money out at once is not going to work? Mr. Bell. Or that they have to guard their money and use it judiciously. Chairwoman Biggert. I think the reverse mortgages are an issue that maybe we want to consider looking into with another hearing or something. So I appreciate your being here. Mr. Bell. We would welcome the opportunity. Chairwoman Biggert. I yield to Mr. Gutierrez for 5 minutes. Mr. Gutierrez. Thank you so much. First of all, I want to welcome my friend and advocate for housing, for people who really, without his advocacy, wouldn't have an opportunity to be part of the American dream. So I wanted to thank Raul Raymundo for taking up our invitation to come, and for--I was on the city council when you were--your resurrection more than 2 decades ago. So thank you for all of the wonderful work, Raul, that you have done, and I am really delighted that you are here, because I think you add a magnificent and very timely voice to what we are doing. So, tell me, Mr. Raymundo, the relationship between HUD funding, lack of HUD funding and what that might do in terms of what you do. I know you represent a broader group of people who are just like you and that do the kind of work. Tell me what your fear is. Tell me what we should know. Mr. Raymundo. I think we are facing--the foreclosure crisis has been ongoing for a few years now. And as I mentioned in my remarks, we continue to have increase in these units out there. I think if we really are going to turn around the devastation that is going on in these communities as a result of boarded-up buildings and crime that is happening in these communities as a result of these buildings, we need to figure out how to stimulate a demand side of the market. I think what has worked for us, and I believe what has worked for many counseling agencies, is preparing people and well educating them. This is not going to happen overnight. In our experience, it often takes 2 to 3 years to make sure that there is a well-qualified, well-prepared buyer to become a homeowner. It is not going to happen overnight, particularly as a result of the crisis that people are facing with lack of jobs, lower wages, and so forth. So, it might take a little longer to be ready to become a homeowner, but once they are ready and they do become a homeowner, it is going to have other ripple effects in our community, such as building up our communities and creating a better economy in our communities. It is something we have to look at differently. It is not short term. We have to be looking at this longer term as well. Mr. Gutierrez. So what kinds of moneys does the Federal Government provide-- Mr. Raymundo. It would be devastating if HUD cuts their funding or future funding. As my colleagues mentioned as well, it is not just about the one-on-one counseling; it is getting the word out. It is making sure that people know that there are opportunities in today's market, but also to prevent them from going down the wrong path, as they have. We are competing daily against predators who are better resourced than housing counselors who are out there promoting on a weekly basis. In our community, as you know, Congressman, they do this through radio shows, sponsoring the whole half- hour, a whole hour of radio show, inviting people to come to them, and they will assist them, often charging them hundreds if not thousands of dollars for assistance that HUD counselors provide absolutely free and do a better job of this. So that is the market and the environment we are competing with. Resources to be proactive in informing people, marketing to them, to do it the right way, is very important, as well as one-on-one counseling. Mr. Gutierrez. I just want to say to you, Mr. Raymundo, and the thousands of others like you, which I know we have, like Mrs. Olson and others, who really are out there to give a benefit to the consumers, and to watch out for their interests; I want to thank you for the wonderful work and contribution you make toward the realization of the American dream of homeownership or just getting a decent place to rent. I think, Madam Chairwoman, it is interesting, because I was listening to Mr. Bell's response to the question, and it just seems to me that it might be a good idea to take a look at it, because I had this concept, because I guess I am not old enough to be thinking about a reverse mortgage, so I just kind of watch it on TV, and it always came across to me that you kind of get this income, you don't lose your home, you get to live in it until you die. Anybody raise your hand if you don't think this is the way you got it. I watch the commercials. But then it sounds like the explanation can be pretty starkly different, right? I am wondering, what if the roof leaks and you don't pay the taxes, a host of things. You have a medical emergency; you lose your house. So, I think that housing counseling is very, very important. I think we should look at it. Because you don't have to be--even I was walking the other day through the airport, and they said, oh, you know, get this credit card, 25,000 miles and you get a free airline ticket somewhere. Has anybody ever really tried to get a free airline ticket with 25,000 miles? They got them for 60, for 90. Then I signed up for a credit card for one of the major hotels. I said, oh, great. They said, you have accumulated enough for three nights. When I went to try to get one of the nights, it was at the lousiest hotel in their chain--no, I am not making this up. You try it. You are going to say that Luis was right. So just think about, what it is you perceive to be, right, that warranty on your car. It is like, oh, those things weren't under the warranty. Only the little light bulb was under warranty. And if it happens to me on such simple things as a reward program, on frequent flier miles, on my--imagine how important, because those things, I just won't take the hotel, right? But this can have very grave consequences beyond what hotel or what trip you might have to cancel or how much you are going to have to deal with your car and not let it turn into a clunker. So I think it might be advisable, we will talk more later. But I want to thank all of the panelists. Thank you so much. Chairwoman Biggert. Remember, there is no free lunch. Mr. Hurt is recognized for 5 minutes. Mr. Hurt. Thank you, Madam Chairwoman. I thank each of you all for joining us this afternoon. One of the things that I was asking about in the earlier panel, and I think many of you were here, but I was wondering, do the programs that HUD and NeighborWorks coordinate and operate, are they able to target those most in need? It sounds to me that there really is not a mechanism to do that, that the targeting, to use Ms. Holston's word, was really more geographic by nature. And that makes sense to me. Obviously, that would be the easiest way to do it. But is there a way to target those most in need? The reason, of course, I ask that is because we do have limited resources, and our ability to fund these programs is going to be more and more difficult as we face, as I said in my opening statement, as we face the prospect of balancing a budget that is $1.5 trillion out of whack. So it seems to me that it is incumbent on all of us to try to figure out how to help the most in need. Does that make sense to you? And if it does, what can you tell us or what thoughts might you have on how to reach those who are most in need. I would just like to hear from each, if you have any thoughts on that, starting with Mr. Bell, if that is okay? Mr. Bell. Yes, Congressman. In the HECM counseling, it is very definitely targeted to need, because the counseling agencies, many of them charge for the counseling, and they use the HUD funds to provide the counseling to those people who are under 200 percent of the Federal poverty level. So the HUD funding is targeted to the lowest income. The other place the HUD funding gets used is people get the counseling before they apply. You cannot apply for an FHA- insured reverse mortgage until you have been out, met with the counselor, completed the counseling and return to the lender with a counseling certificate issued by the counselor. What happens sometimes is people go out for the counseling-- Mr. Hurt. Which is different than foreclosure prevention, I guess. Right? Mr. Bell. Yes. Right. People go out for the counseling, and they decide it is not for them as a result of the counseling, so, therefore, the counseling agency has incurred this cost but does not have a client who will get the loan and will ultimately pay for it. So the HUD funding is used for that. Those are the two spots: for those below 200 percent of the Federal poverty level; and for those where the client does not proceed with the HECM loan. Mr. Hurt. Got it. Thank you. Ms. Hill, do you have any thoughts on that? Ms. Hill. I do. A couple of things that I just want to highlight. One of the comments when we were preparing to testify here from our housing counseling agencies was to underscore that we have a number of underserved communities and particularly in rural communities from housing counseling programs. So as a national intermediary, we actually go through an RFP process with our own Catholic Charities agency where they both have to demonstrate their capacity to do the work as well as the compelling need in their local community. So one way for us under the NOFA is to actually look at our network and then have them make the compelling argument from their local community that they need the funds to do this particular work, because it is a finite pot of money. So that is the way in which we address it. We do believe, however, that there needs to be more attention given to underserved communities, especially rural communities that need the services. Mr. Hurt. Thank you. Ms. Olson? Ms. Olson. Thank you for your question, Congressman. It really depends in my view on how you define need. Do you define need based on the number of foreclosed homes in a geographic area; based on the number of foreclosed homes as a percentage of homeownership; based on unemployment rates, because with unemployment, you have people who won't be able to pay their mortgages; based on poverty levels; based on percentage of drop in home values, so you have homeowners who are underwater. There are so many factors that go into determining why and where foreclosure happens-- Mr. Hurt. Is there a mechanism that you know of that HUD or NeighborWorks uses or could use, is there a mechanism in place that you go to, to make that assessment? Ms. Olson. When we apply for grants, when local agencies apply for grants to HUD, we are required to demonstrate need, both in narrative and in data. So it is HUD that has been making that determination of what the need is. And I understand it has been on geographic. But I think requiring agencies to demonstrate need in their applications is going to help any agency, funding agency, then prioritize where those funds are going to go. Other than that, I honestly would have to think about that and provide you with a written answer, because that is something that I am very happy to think about and provide you my thoughts on. Mr. Hurt. Thank you. Mr. Raymundo? Mr. Raymundo. Yes, I would agree with Ms. Olson. I think it depends. You don't necessarily want to just focus on need, because communities that are adjacent have different problems. One community that is adjacent to another may have a greater need. But it doesn't do very much for that community that is doing okay to also fall apart. And that is important to recognize, because we don't want to necessarily penalize communities that are improving themselves, and at the same time, we don't want to necessarily not include communities in need or in the greatest need. So I think what exactly we are defining as need is something that we have to look at. But we need to invest again moving forward. Some communities are ready to improve themselves more than others because they are ready. But given the economy, it won't take long for them to fall back. Mr. Hurt. Got it. Thank you. Thank you for your answers. Chairwoman Biggert. Thank you, Mr. Hurt. Just one quick issue. I think, Ms. Hill, you mentioned that one of the challenges was PR and getting the word out. Is that correct? Ms. Olson. Actually, I think we both did. Chairwoman Biggert. You both did. Good. In the testimony from Ms. Fitzgerald of NeighborWorks, she talks about the fact that they have reached millions of homeowners in their Ad Council campaign which she says was primarily financed by private sector funds from NeighborWorks America's partners, but this campaign has been ranked in the top 10 of all Ad Council campaigns, and it reached millions of household its and garnered more than $165 million in donated media. I wonder if any of you had been benefited by this ad campaign, had you been part of that? Ms. Olson. I am sure that there are clients that DHOC has seen that came because they have seen that. We do look at the data as to how people found out about our services. Really, the majority of people find out about our services either through recommendations from our county government or another agency that they are going to because they are in need. So it is more word of mouth or referral. Also our Web site--we are actually find out that IT, using the Internet is the most effective way to let people know that you have services available. It is just a matter of funding that kind of IT development within an agency. Word of mouth from friends and neighbors, people share at their churches that they are in trouble. That would be the third way. So, really, I would put the NeighborWorks ad campaign down lower in terms of our agency. Chairwoman Biggert. But NeighborWorks didn't reach out to you or other counties to be part of the campaign or have your-- DuPage County or whatever--mentioned in that? Ms. Olson. Not to my knowledge. Chairwoman Biggert. Or Catholic Charities? Ms. Hill. Not to my knowledge, either. Chairwoman Biggert. And the other one was also a scam alert that was--to have an anti-rescue scam public education campaign, and that was done in 2009. Were either of you involved in that? It was actually partnered with a lot of other organizations, like HUD, Treasury, FTC, the Department of Justice, Fannie Mae and Freddie Mac. Does anybody know anything about that? FDIC, State attorneys general? Ms. Olson. We applied for the HUD funding round, the most recent one that included mortgage scam assistance, but we have not been asked to participate in an ad campaign like that. Actually, the Attorney General of Illinois has a Web site that we refer people to when they have been scammed or a local legal service, but no ad campaign. That would be great. Chairwoman Biggert. Okay. I think there is a lot there. With that, the Chair notes that members may have additional questions for this panel which they may wish to submit in writing, and without objection, the hearing record will remain open for 30 days for members to submit their questions to the witnesses and to place your responses in the record. I really appreciate all of you being here. This has been a great panel. Thank you so much for coming here and really giving us the information that we need as we move forward on these issues. With that, this hearing is adjourned. [Whereupon, at 4:17 p.m., the hearing was adjourned.] A P P E N D I X September 14, 2011
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