Proposed HUD rule for housing counseling likely to proceed

A Department of Housing and Urban Development proposal that would update policies around housing counseling that's required for some originations is approaching a deadline this month and appears likely to move forward.

The proposed rule, which has a Dec. 26 due date for comments, is somewhat similar to a Federal Housing Administration proposal on track to be finalized next year. Both moves are in line with efforts to have successors to pandemic waivers before expiration.

While some counseling initiatives that require spending have been grounds for partisan division over the practice's value in the past, efficiencies in the proposal make it unlikely in this case. Reaction has been largely supportive, though there's some concern in-person meetings will get short shrift.

"It should also remain a priority to continue to include in-person appointments in the future," Ariel Duffiney, a former recipient of HUD programs and social work student, in a submitted comment. "This option can be used with clients who may not have access to video conferencing resources."

The proposal requires face-to-face meetings where recipients prefer it but does give housing counseling agencies the flexibility to refer out the responsibility.

The change most notably would impact people who can't or choose not to use technology, such as some older adults and disabled people. Among the loans housing counseling is required for are FHA-insured reverse mortgages, which allow people who are age 62 and older to withdraw equity while still living in their home, so long as they can maintain property ownership responsibilities.

"Participating agencies that choose not to provide in-person services will be required to refer clients to local providers that provide such services, when requested," the proposed HUD rule reads.

Currently, agencies must maintain facilities for in-person counseling and they would no longer need to so long as an adequate, local referral was available under the new policy.

"The proposed rule would help reduce the costs of maintaining multiple physical locations, instead shifting emphasis to demonstrating knowledge of the local housing market and community resources," HUD said in describing the proposal.

Some agencies have told the department that remote counseling during the pandemic has offered efficiency benefits for them and counseling recipients. 

"This move to offering virtual options has absolutely benefited our clients, especially those who are living at or below 80% of our area median income," Homeword, a Montana-based agency, said in a submitted comment. "It reduces the need for them to find childcare (although we offer them reimbursement) and also minimizes the travel required."

Even before the pandemic in 2019, some studies found the majority of counseling recipients had a preference for technology-assisted contact.

More recently, homeownership counseling in general has gained momentum with lenders due to affordability concerns that have resulted in a greater borrower interest in obtaining the kind of housing assistance that requires it.

In addition to the proposed rule, HUD has been engaged in broader modernization efforts around counseling and updated its online handbook for it in September. Those changes include new protocols and flexibilities for reverse mortgage counseling and are effective as of Jan. 1, 2024.