Department of Housing and Urban Development Secretary Shaun Donovan testified before the Senate Banking Committee last week, urging the committee to reintroduce housing counseling funding that was cut as part of the budget deal passed in April. As a result of the funding cuts, the housing counseling expense will fall on seniors looking to take advantage of the Federal Housing Administration’s reverse mortgage program, he said.

In urging the Senate Banking Committee to keep the funding allocation for housing counseling in the fiscal year 2012 budget, during the question and answer portion of the hearing Secretary Donovan spoke of the wide impact the cuts have on the population in need of housing counseling.

“Housing counseling has always had a benefit to homeowners, but particularly through this crisis that we’ve seen, the importance of housing counseling has increased substantially,” he said.

In addressing talk of partial funding for housing counseling programs, Donovan said it only meets a portion of the needs, and that reverse mortgage borrowers are one population that will suffer from the impact of the cuts.

“Seniors who are interested in using our reverse mortgage program are required to have counseling,” he said. “That counseling was paid for through HUD’s appropriation. There is no other source of funding, and now that expense will fall on seniors.”

Counseling agencies have spoken out against the funding cuts, arguing that in many cases they will no longer be able to offer HECM counseling without charging a fee of $125 or more per counseling session.

Recent protocols introduced by HUD have made the counseling process more involved, including use of the Financial Interview Tool, which has lengthened counseling sessions. Upon those changes, many counseling agencies began to waive fees for HECM counseling, in addition to the discounted or free counseling they previously offered to low-income borrowers.

Some reverse mortgage lenders, however, have said that while the counseling cuts aren’t desirable, less dependence on the government in supporting the HECM program is. Many have said that the counseling cuts will not prevent reverse mortgage lenders from doing business.

The housing counseling funding is expected to dry up in October, when the 2012 budget goes into effect.

“We expect that as of October 1 with this cut, that there are many agencies around the country that will not be able to provide funding,” Donovan said during the hearing. “It is absolutely critical in 2012 that we restart this funding.”

View a transcript of Secretary Donovan’s testimony.

View a video of the hearing.

Written by Elizabeth Ecker