HUD Program Overhaul Ties Housing Counselor Performance to Default Rates, Mandates Counseling for Delinquent Borrowers

This legislation overhauls the Department of Housing and Urban Development’s (HUD) housing counseling and financial literacy programs, dramatically changing how grants are distributed and how counselors are evaluated. The goal is to boost accountability and ensure that counseling services are more equitably spread across the country. Specifically, the bill mandates that HUD must now distribute grants to ensure geographic diversity, making sure organizations serving both urban and rural areas get a piece of the pie.

The Counselor Report Card: Default Rates as a Metric

For anyone considering buying a home with a federally insured mortgage—like an FHA loan—or who works in the housing counseling field, this next part is a major shift. HUD will now conduct performance reviews of all agencies and counselors. Crucially, for those providing pre-purchase counseling, the Secretary is authorized to judge a counselor’s competence by comparing the default rate of their counseled borrowers against the default rates of all similar borrowers in comparable markets. This means if a counselor has too many clients defaulting on their FHA or similar loans, the counselor could be flagged for lacking competence.

If a counselor is deemed incompetent, and the Secretary determines sanctions won’t cause a “significant loss of service capacity,” that counselor could face mandatory continued education, probation, or required retesting. Fail the retesting twice, and that counselor could lose their certification permanently. This is a huge change, tying individual performance directly to market outcomes, which could be tricky in volatile or high-cost areas where defaults are naturally higher. While the intent is to weed out low-quality advice, the risk is penalizing good counselors who happen to be working with high-risk populations in tough markets.

What Happens When You Fall Behind?

On the access side, the bill includes a clear win for homeowners struggling with their mortgage payments. If a borrower is 30 days or more delinquent on a “covered mortgage loan”—which includes loans insured by FHA, VA, or USDA—they must be given an opportunity to participate in available housing counseling. This mandatory offer ensures that borrowers facing foreclosure get a lifeline and access to professional help before things get worse.

Even better, for those with FHA-insured loans, the cost of this mandatory counseling will be paid for by the Mutual Mortgage Insurance Fund, provided certain existing statutory requirements are met. This is a practical benefit that removes a financial barrier for struggling homeowners, ensuring they don't have to pay out-of-pocket for the advice they need to save their home.

Accountability for Agencies

Grant-receiving organizations also face increased scrutiny. HUD can now deny the renewal of grant assistance if a performance review shows the organization or its counselors aren't meeting program requirements. The good news for the agencies is that this process includes a safety net: HUD must provide 60 days' written notice before denying renewal. Furthermore, the organization has the right to request an informal conference with the Deputy Assistant Secretary of Housing Counseling to present specific factors that might have been beyond their control—like a lack of cooperation from lenders—that contributed to the poor performance. This provision acknowledges that sometimes, external roadblocks, not just poor performance, can affect outcomes.