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Thursday, April 17, 2014

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Cascade Focus

An Overview of the Nonprofit Foreclosure Counseling Industry in Philadelphia*

Highlights

  • The demand for foreclosure counseling services in Philadelphia is high, but the resources available to meet that demand are limited.
  • The industry is heavily reliant on government funding; however, access to that money comes with a significant administrative burden.
  • Housing counselors bear a heavy workload, which is exacerbated by bureaucratic reporting requirements.
  • Staff training is particularly problematic: Staff turnover and stringent requirements for continued funding make it difficult for agencies to maintain a staff of counselors who have the necessary qualifications.

The housing market collapse in the second half of the last decade contributed to a surge in foreclosures across the country that still persists today. While in many respects the city of Philadelphia was well positioned to handle the situation, the volume of foreclosures was still sufficient to stretch the courts and lead to the creation of the Residential Mortgage Foreclosure Diversion Program. Although highly effective to date, the program is heavily reliant on counselors for its continued success. Today, the nonprofit homeownership counseling industry in Philadelphia is beset with difficulties: Funding is limited, demand for counseling services remains high, and staff retention is problematic due to the stressful conditions under which counselors work. This has led to questions about the industry’s ability to maintain its leading role in foreclosure prevention with its current level of funding and raises the issue of consistency in service delivery across agencies.

This paper provides an overview of the nonprofit foreclosure counseling industry in Philadelphia, including a survey of the city’s counseling agencies that highlights the challenges the industry faces. Specifically, the paper discusses the industry’s structure, financial status, and requirements for funding. In addition, the survey results provide information on service delivery and monitoring, staffing, finances, investment priorities, and additional critical issues facing the industry. The paper is a springboard for future discussion and includes questions for further exploration.

Industry Overview

Philadelphia has developed a broad base of organizations that offer homeownership counseling for foreclosure prevention. These organizations vary considerably in size and in purpose but can be broadly categorized by function. The categories are summarized in Table 1; a full list of agencies and their categorizations can be found in Appendix 1.

Note that the organizations that are the primary focus of this paper are specifically homeownership counseling agencies that operate in Philadelphia and that offer counseling services for foreclosure prevention.1

Table 1: Types of Agencies Offering Foreclosure Counseling
Agency Type
Number of Agencies
Social service providers
14
Community development corporations
7
Advocacy organizations
4
Counseling specialists
3
Senior service providers
3
Developers
2
Lenders
1
Total*
30

* Four organizations are included in two separate categories; therefore, the total indicated is not the sum of the column.

Most of the 30 agencies operating in Philadelphia are not exclusively, or even primarily, devoted to homeownership counseling; therefore, these agencies employ just a handful of homeownership counselors. Almost half of the agencies provide a range of social services, rather than focusing on counseling in particular, and others have missions for which homeownership counseling is a part but not a central component. This broad scope of operations contributes to the fact that many of the agencies’ counseling functions exist on the margin, meaning that they try to provide services with limited resources. As a result, eight agencies have closed or ceased to offer foreclosure counseling services over the past two years, which has, in turn, increased the workload for those remaining.2

Finances

Foreclosure counseling is funded through multiple channels in Philadelphia, each in different forms and with different requirements. The primary funders are government entities at the city, state, and federal levels: the City of Philadelphia’s Office of Housing and Community Development (OHCD), the Pennsylvania Housing Finance Agency (PHFA), and the U.S. Department of Housing and Urban Development (HUD). Each of these has its own model for distributing funds to agencies, and each maintains separate lists of agencies eligible to receive funding. The OHCD uses a “request for proposal” (RFP) process to provide HUD Community Development Block Grant (CDBG) money to agencies; the PHFA uses a fee-for-service model in which certified agencies are reimbursed for services provided; and HUD disburses money both directly to agencies and via intermediaries, including the OHCD and the PHFA.

Currently, the OHCD and the PHFA have each approved 25 agencies for foreclosure counseling in Philadelphia, while HUD has
approved 20. Funds distributed to the agencies from each of these funding sources since 2009 are detailed in Table 2.

It should be noted that, in addition to the funding of agencies discussed here, other services are provided that benefit the foreclosure counseling industry. The OHCD, for example, also funds the Save Your Home Philly hotline, door-to-door outreach efforts, and the work of Community Legal Services, Inc. At current funding levels, this amounts to over $1 million per year in additional investment. Similarly, pro bono legal work has an accumulated value of $2 million since the inception of the Residential Mortgage Foreclosure Diversion Program in 2009.3

Since the homeownership counseling industry is so reliant on government funding, it is vulnerable to overall cuts in public spending, as seen in fiscal year (FY) 2011 when HUD funding for housing counseling was eliminated as part of the federal government’s FY 2011 Continuing Resolution. The spending reductions in FY 2011 amounted to a loss of $88 million for housing counseling across the nation.4

Table 2: Funds Distributed to Foreclosure Counseling Agencies
Funding Organization
FY 2009
FY 2010
FY 2011
FY 2012
Foreclosure Counseling
OHCDa
$1,791,666b
$1,225,000b
$1,925,000
$1,925,000
PHFAc
$2,795,892
$4,110,345
$2,492,500
$4,500d
Total Housing Counseling
HUD (direct funding)e
$465,940
$567,782
$0
$630,921

Funding Requirements

Each of the main funding organizations uses its own methods to select counseling agencies to fund. In each case, there are specific standards that must be met for the agencies to gain approval. In addition, after an agency has gained approval it may be required to meet given standards of operation and training. The standards for both stages are outlined here for each of the funding organizations and are detailed in Tables 3 and 4.

The OHCD

The OHCD approves agencies based on applications solicited through an RFP process. Agencies must complete a detailed application for funding, which can be renewed for one year up to two times before the agency must submit a new application. Each application is assessed based on (among other things): capacity to deliver counseling, demonstrated track record, anticipated long-term effectiveness, prior experience of staff, and staff qualifications. Once an agency is approved for funding, it receives a grant from the OHCD and is required to take on additional clients from Philadelphia’s Mortgage Foreclosure Diversion Program. Philadelphia’s program has proven to be highly effective and has been used as a model for similar initiatives in other cities. While the OHCD funds are not restricted to foreclosure counseling, a substantial portion of the grants are used for that purpose as a result of the program. Once approval is granted, the OHCD requires that agencies follow the regulations for HUD’s Housing Counseling Program and the National Industry Standards (see below). A key exception to this requirement is that client management and reporting must be conducted using CounselorMax, an online tool owned by NeighborWorks America that tracks and organizes counseling from client intake to resolution.

The PHFA

The PHFA uses a funding and evaluation model in which agencies become eligible for reimbursement for services provided to clients once they are approved as meeting the PHFA’s standards. Like the OHCD, the PHFA requires agencies to demonstrate competence and capacity to meet their proposed counseling agenda. After an agency receives approval, it must comply with a set of stringent core operating standards. These standards cover staff training and certification, adhering to a code of ethics and conduct, and following specific stipulations about the services that must be administered to all clients. Unlike the OHCD, the PHFA requires agencies to report counseling outcomes using Home Counselor Online, an alternative program to CounselorMax that is operated by Fannie Mae. This difference results in duplicated effort and wasted time for many counselors who must enter the same data into both systems.

HUD

HUD distributes funds both directly to agencies and through intermediaries; in both cases, the recipients of the funds must obtain approval before receiving them. The approval criteria are similar to those used by the OHCD and the PHFA: Agencies must demonstrate their ability to effectively administer housing counseling in a specific area by detailing their experience, capacity, and resources, as well as documenting a sound financial footing. Once an agency receives HUD funds, it must implement the proposed work plan, deliver timely and accurate reports, achieve a minimum workload, disclose various pieces of information to clients, abide by certain federal regulations and audit requirements, and maintain an acceptable level of trained staff. Compliance with these requirements may be reviewed through on-site or remote performance reviews.

An additional set of standards, the National Industry Standards (NIS), is maintained by a collaborative of housing industry organizations. This set of standards provides a widely recognized benchmark that is endorsed by HUD, financial institutions, and government agencies and may be expanded upon and adopted by HUD in the coming years.5 The guidelines represent a baseline set of national standards that the PHFA supplemented to better meet the needs in Pennsylvania when the organization developed its own requirements.

Table 3: Agency Approval Requirements
Requirements
OHCDa,b
PHFAc
HUDc
Agency experience No minimum requirement; describe in application Two years One year
Area of service Plan for how to reach geographic area Leading provider in geographic area Served geographic area for one year
Counseling resources No minimum requirement; describe in application Sufficient resources for service plan Sufficient resources for service plan
Recordkeeping and reporting No minimum requirement; describe in application Demonstrated capacity Established system
Audit Not required Independent, prior accounting year Independent, prior 12 months
Training No minimum requirement; describe in application PHFA training (free) HUD conference; HUD training
Client management system CounselorMax Home Counselor Online Any system compatible with HUD’s
Other certifications Successful applicants must complete a Program Management Systems Review if no contract has been held with the OHCD in the previous three years Staff certified through HUD/NeighborWorks America Training Institute, or two years’ experience as a trainer Staff must have six months’ experience in role they will perform
Other requirements Compliance with Community Development Block Grant funding regulations Agency trained in HEMAP and other PHFA lending products;d meets HUD requirements for providing homeownership services Staff fluent in language for client base; knowledge of HUD programs and local housing market
  • a The OHCD applications are evaluated on their overall merits and compete with peer agencies for a limited number of approvals, rather than having specified minimum standards that must be met for approval.
  • b OHCD (2010), “Request for Proposals for Year 36 Housing Counseling Activities.”
  • c Data provided by the PHFA (August 21, 2012).
  • d HEMAP: Homeowners’ Emergency Mortgage Assistance Program.
Table 4: Agency Operating Requirements
Requirements
OHCD/HUDa,b
PHFAc
NISc
Counselor training/certification Must be trained in housing counseling (which HUD may sponsor), and at least half of the counselors must have at least six months’ experience in their role NIS requirements plus PHFA training, three months in mentoring program, additional 25 hours of training within six months of employment, gain PHFA certification within six months of employment Complete 30 hours of training within 12 months of employment, gain NIS certification within 18 months of employment, 10 hours of continuing education per year
Service delivery Face-to-face counseling, with performance criteria, in-person or via telephone/video conference The PHFA provides all required criteria and additional services and topics for face-to-face counseling Face-to-face counseling tailored to clients’ needs using a variety of interactive techniques
Expected outcomes Must adhere to grant work plan; must counsel at least 30 clients annually Sessions last at least 60 minutes and cover specified criteria Sessions last at least 30 minutes; must give client an understanding of diverse topics
Recordkeeping Maintain records for three years after client termination and maintain separate, confidential files for each client Monthly invoices with documentation; compliance monitored remotely and through on-site audits Collect and maintain information in accordance with laws and funder requirements
Reporting Reports up to every quarter; the OHCD requires use of CounselorMax; annual audit for recipients with >$500,000/year of federal funding Report all activity using Home Counselor Online Use an electronic client management system for data collection and reporting
Ethics and conduct Staff may not engage in activities with a conflict of interest Sign and adopt PHFA Ethics and Conduct form Sign National Industry Code of Ethics and Conduct form

Industry Challenges

In order to identify and quantify the critical challenges facing the industry, the Federal Reserve Bank of Philadelphia conducted a survey of the executive directors or, where applicable, housing directors of the 30 agencies conducting foreclosure counseling in the city. The questions, listed in full in Appendix 2, addressed challenges in staffing, service delivery and monitoring, finances, and investment priorities. The survey was administered online, between September 6 and September 17, 2012, and had a 50 percent response rate. To protect the confidentiality of the responding agencies, all results are reported in aggregated form only.

Staffing

The agencies surveyed typically have a very limited number of counselors: On average there are fewer than three full-time counselors per agency, and only three agencies reported employing any part-time counselors. Compounding the issue is turnover; an average of about one-half of a full-time counselor joined and left each agency in the past year, resulting in a turnover rate of just over 21 percent. Although the average number of departed counselors was slightly greater than the average for those joining, only one agency reported a net loss of full-time counselors across the past 12 months (see Table 5).

The caseload for each counselor, measured as clients counseled per month, is high and slightly weighted toward foreclosure work. Almost all the agencies reported offering both foreclosure and nonforeclosure counseling; moreover, there are almost as many agencies that reported more nonforeclosure counseling as there were that reported more foreclosure counseling. A notably larger maximum number of clients were served for foreclosure work (80) than for nonforeclosure (60), and two-thirds of the agencies have more than 20 foreclosure clients per counselor per month. This comes to a mean of about 29 foreclosure clients per counselor per month, which, added to a mean of about 22 for nonforeclosure clients, puts the average caseload at around 50. This varies dramatically by agency, however, with the total caseload ranging from 9 to 130 (see Table 6).

Table 5: Counselor Employment and Turnover (Mean)
  Currently Employed Joined Agency in Past 12 Months Left Agency in Past 12 Months
Full-time counselors
2.33
0.46
0.50
Part-time counselors
0.44
0.11
0.00
Table 6: Counselor Caseload (Clients/Counselor/Month)
  Mean Range ≥20/month
Foreclosure
28.67
4-80
67%
Nonforeclosure
21.79
0-60
50%

Service Delivery and Monitoring

In line with the traditional model of homeownership counseling, virtually all of the responding agencies reported offering face-to-face counseling, and just under half have the capability of providing service outside of their offices. Adoption of technology to make foreclosure counseling more efficient is limited, which is indicated by the findings that less than a quarter of agencies offer foreclosure counseling over the telephone and just one is able to offer counseling via videoconferencing or webinars. These alternative formats come with hardware and service costs for both the agencies and their clients but could provide benefits in the form of reduced travel time and costs and more flexible scheduling of counseling sessions (see Figure 1).

All the agencies surveyed monitor the outcomes of their counseling, but there is not a universal standard for how that is done. Loan modification is the most common outcome, tracked by 85 percent of agencies, followed by any final resolution within a given time frame (77 percent) and then by homeowners becoming current on their mortgage (69 percent). Less than half of the agencies track whether or not the client was still in his or her home after a certain period of time (see Figure 2).

Finances

The industry is heavily reliant on funding from government sources. All responding agencies reported receiving OHCD funding, almost two-thirds also received money from the PHFA, and just under a half listed HUD as a funding source (see Figure 3). Just over one-third cited other sources of income from the private sector. The PHFA, HUD, and other sources each contributed a median of around one-quarter of total funding.

The OHCD, on the other hand, was responsible for half of the total funding, by median. This reliance on public support during a period of slow economic growth and rising concerns over budget deficits puts the industry in a precarious position, and in need of additional funding streams to counteract the potential loss of government funding.

The financial outlook for the next year is weak. A majority of respondents expect funding to stay roughly the same while expenses increase, but almost one-quarter of respondents anticipate a reduction in funding (see Figure 4). Just one respondent expects a funding increase, and another an expenses decrease. With relatively few counselors employed at present, there is little room for curtailing service offerings, so tightening budgets may be very difficult for many of the smaller agencies to achieve. Given the diversity in the agencies’ missions and the fact that housing counseling is typically just one of many services offered, the merging of agencies to Agencies’ Funding Expectations for the Next Fiscal Year provide financial stability is unlikely to be a viable option in most cases.

Investment Priorities

Respondents were asked to rate their agency’s need for additional funding in different areas on a 5-point scale, where 1 is no need and 5 is urgent need (see Figure 5). Measures to retain staff registered as the greatest area of need, with just one respondent rating the need as less than four. By the mean score, staff size is the second most important area for investment, and only one agency indicated no need for any extra staff. Most respondents saw a need for investment in staff training, but only one agency considered this urgent. With staff turnover and the requirements for a The numbers are rounded; therefore, they do not add up to 100. continuing training and education, it is to be expected that training will remain an area of ongoing concern sources of income from the private sector. The PHFA, HUD, and other sources each contributed a median of around one-quarter of total funding. The OHCD, on the other hand, was responsible for half of the total funding, by median. This reliance on public support during a period in the future. Ratings for facilities were the most divided, with three respondents citing urgent need and two indicating no need at all.

None of the respondents considered technology to be in urgent need of investment, despite the somewhat low rates of technology usage in counseling delivery. This is the only area in which the mean need score is below the midpoint of three.

Additional Critical Issues

Respondents were also asked to identify the critical issues facing the industry. Many took the opportunity to elucidate their answers to other questions pertaining to agency needs. Thus, there were references to inadequate salaries for counselors, staff shortages, and burdensome training requirements. Other issues that were raised included the need to improve outreach and identify clients before their homes went into foreclosure, at which point it may be too late to provide effective help. It was suggested that better financial literacy would go a long way toward keeping the number of foreclosures down and relieving some of the strain on the agencies’ resources. The time-consuming data entry and reporting processes required by funders were also cited as a significant problem. Finally, one respondent noted that there were a rising number of young clients, many of whom defaulted on their mortgages as a result of unemployment or medical issues, which raises the possibility of finding new ways to stem the flow of foreclosures by addressing the sources of the problems that precipitate mortgage default.

CONCLUSIONS

Foreclosure counseling in Philadelphia is in high demand, but the city’s housing counseling agencies have limited resources with which to meet that need. There is a high degree of reliance on public funding for operations, which is particularly problematic in the current environment of increased concern over budget deficits and public debt. Counselors are being asked to provide services to numerous clients, and agencies have to meet multiple sets of requirements to access and to maintain funding from the primary funding sources. In recent years, these pressures have led to a reduction in the number of agencies offering such counseling in Philadelphia and may continue that trend without new sources of funding to bolster service provision.

This paper has provided an overview of the nonprofit foreclosure counseling industry in Philadelphia by outlining the system and its challenges. However, additional considerations need to be evaluated in order to fully assess the industry’s needs for the future. Possible areas for future research include:

  • How large a role does pre-purchase counseling play in foreclosure prevention?
  • Can demand for foreclosure counseling be mitigated by improved financial literacy? If so, what is the best way to achieve that?
  • To what extent can earlier intervention for those with precipitating factors of foreclosure (e.g., unemployment, health issues) be used to alleviate the demands on the counseling industry?
  • What are the best ways to service populations with nonstandard counseling needs (e.g., the elderly, the disabled)?
  • What are the best ways to measure and track counseling outcomes?
  • How can technology be employed to improve counseling service delivery?
  • What are the most effective ways to retain counselors?
  • How can the numerous responsibilities and heavy workload placed on counselors be ameliorated or shared?
  • *The author wishes to thank a number of people for their contributions to this report. Mark Thyle assisted with the collection and organization of information for the study. Don Kelly, Don Haskin, Alison Hughes, and Theresa Singleton gave guidance on the paper throughout its preparation. Terri Redmond and Hiram Carmona provided substantial assistance in the form of data and information on the industry, and Marty Smith, Erin Mierzwa, and Hilda Guay offered helpful comments and suggestions. Finally, the author would like to thank all of the survey respondents and interviewees for giving their time and providing input.
  • 1 While pre-purchase counseling also plays an important role in preventing foreclosures, it is not part of the focus of this report.
  • 2 The eight agencies are Advocates for Financial Independence; American Financial Counseling Services; Carroll Park Community Council, Inc.; Germantown Settlement; the Housing Association Information Program; the Housing Consortium for Disabled Individuals; the Neighborhood Assistance Corporation of America; and the Tenant Union Representative Network.
  • 3 OHCD, U.S. Conference of Mayors Handout, 2012.
  • 4 HUD, “HUD Housing Counseling FY 2011 FAQs,” External Link (accessed August 20, 2012).
  • 5 Correspondence with HUD staff (August 29–30, 2012).
  • The views expressed in this publication are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
  • Last modified: February 5, 2013

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