The futile $100M foreclosure fix

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NEW YORK (CNNMoney.com) -- Housing counselors are often the last and best line of defense for borrowers facing foreclosure, and the $15 billion housing rescue bill now before the Senate allocates $100 million for foreclosure prevention counseling.

More funding is certainly good news for people like Jim Carr, chief operating officer for the National Community Reinvestment Coalition, a non-profit neighborhood advocacy group. He'll use any windfall from this bill to hire more counselors who can hammer out solutions for desperate homeowners and lenders trying to minimize their losses.

But most housing advocates agree that cash isn't the biggest obstacle to achieving this goal - lender cooperation is. "The counselors are working as hard as they can," Carr said, "but the servicers are not cooperating."

Many lenders and servicers are still reluctant to make the major modifications to loans that most at-risk borrowers would require in order to keep up with their payments according to Bruce Marks, CEO of the Neighborhood Assistance Corporation of America (NACA).

This $100 million appropriation would come on top of the $180 million in emergency foreclosure counseling funds approved by Congress last fall, as well as the $40 million or so that the Department of Housing and Urban Development (HUD) allocates to counseling annually.

And there's been a 10-fold increase in training of HUD-certified credit counselors since 2004, according to Doug Robinson, spokesman for NeighborWorks, the non-profit organization that administers and distributes the foreclosure prevention fund for HUD. There were 1,678 counselors certified in 2007, compared with 970 the year before, 325 in 2005 and just 143 in 2004.

Still, only about a quarter of the borrowers helped by members of the Hope Now alliance - the coalition of lenders, investors and community groups spearheaded by the Treasury Department to fight the foreclosure crisis - have actually had the terms of their mortgages made more affordable.

The rest of the 1.1 million borrowers Hope Now has helped were simply given extra time to make up their missed payments - a measure that does nothing to address the fundamental problems with at-risk mortgages.

Although lenders aren't being as flexible as housing advocates might like, counselors play a critical role in getting lenders to work with borrowers at all.

At the East Side Organizing Project (ESOP) in Cleveland, for example, foreclosure counselor Jenelle Dame has weekly calls with Countrywide Finance (CFC, Fortune 500) and other lenders to discuss client cases. She has established relationships within the organization that smooth the negotiation process, and knows what kind of mortgage modifications different lenders are most receptive to.

ESOP director Mark Seifert said, "It's easier to get workouts that it used to be," thanks to the efforts of Dame and the rest of his staff. "There's still a lot to be desired," he adds, "but it's better."

The additional funds allocated for foreclosure prevention have enabled many community-based counseling agencies to extend their reach and help more families.

Seifert says ESOP received $800,000 from last fall's emergency funding, which is being used to open up five branch offices in other hard-hit Ohio areas, and to train other agencies to emulate ESOP's successful program. It has hired three new counselors in its Cleveland office and five more around the state.

The National Foundation for Credit Counseling already has a staff of 843 counselors and anticipates it would reach 60,000 consumers this year, according to spokesman Bob Ensinger. After receiving $15 million in the last round of Congressional funding, it's hiring an additional 141 counselors to serve another 10,000 clients.

NACA is also beefing up its ranks according to NACA's Marks, thanks to fresh funding.

"That counseling money can be put to effective use - if you get the solutions from the lenders," he said Bruce. "But Congress has to force some solutions on them."

The NCRC's Carr agrees.

Counseling will only be as effective as it can be if the solutions are based on a borrower's ability to pay, Carr said. And allocating more money for counseling simply isn't going to change that fact.