Housing Counseling Program, 55638-55654 [E7-19166]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 72, Number 188 (Friday, September 28, 2007)]
[Rules and Regulations]
[Pages 55638-55654]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19166]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 214



Housing Counseling Program; Final Rule

Federal Register / Vol. 72, No. 188 / Friday, September 28, 2007 / 
Rules and Regulations

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 214

[Docket No. FR-4798-F-02]
RIN 2502-AH99


Housing Counseling Program

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This rule establishes regulations for HUD's Housing Counseling 
program, as authorized by the Housing and Urban Development Act of 
1968, and for which, for the past several years, notices of funding 
availability have been issued on an annual basis. This final rule 
follows publication of a December 23, 2004, proposed rule that adopted 
and augmented the Housing Counseling program requirements with which 
grantees and housing counseling agencies are already familiar. This 
final rule takes into consideration the public comments that were 
received in response to the proposed rule and makes several changes to 
the proposed regulatory text at this final rule stage.

DATES: Effective Date: October 29, 2007.

FOR FURTHER INFORMATION CONTACT: Ruth Roman, Director, Office of 
Program Support, Office of Housing, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 9274, Washington, DC 20410-
8000, telephone, (202) 708-0317. (This is not a toll-free number.) 
Individuals with hearing or speech impairments may access this number 
through TTY by calling the toll-free Federal Information Relay Service 
at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On December 23, 2004 (69 FR 77118), HUD published a proposed rule 
that would establish regulations for its Housing Counseling program. 
HUD's Housing Counseling program is authorized by section 106 of the 
Housing and Urban Development Act of 1968 (12 U.S.C. 1701x) (Section 
106). Section 106(a) authorizes HUD to provide or contract with 
organizations to provide ``counseling and advice to tenants and 
homeowners with respect to property maintenance, financial management 
and such other matters as may be appropriate to assist them in 
improving their housing conditions and in meeting the responsibilities 
of homeownership.'' Further, section 106 authorizes HUD to provide 
counseling directly or to enter into contracts with, or make grants to, 
and provide other types of assistance to eligible private or public 
organizations (including grassroots, faith-based, and other community-
based organizations) with special competence and knowledge in providing 
housing counseling to low- and moderate-income families.
    HUD's Housing Counseling program offers the counseling services 
authorized by Section 106 by making grants to, or contracting with, 
HUD-approved housing counseling agencies to provide this counseling. 
Housing counseling services offered under HUD's program may include, 
but are not limited to, the following: Assisting eligible homebuyers to 
find and purchase homes; helping renters locate and qualify for 
assisted rental units; helping eligible homebuyers obtain affordable 
housing; assisting homeowners to avoid foreclosures; assisting renters 
to avoid evictions; helping the homeless find temporary or permanent 
shelter; reporting fair housing and discrimination complaints; and 
addressing housing problems.
    In the December 23, 2004, rule, HUD proposed the codification of 
the requirements of the Housing Counseling program. In addition, HUD 
proposed additional requirements and procedures to improve and 
strengthen the Housing Counseling program. The preamble to the proposed 
rule, at 69 FR 77118-77125, provides a more detailed discussion of the 
regulations proposed for codification for the Housing Counseling 
program.

II. This Final Rule

    This final rule takes into consideration the public comments 
received on the December 23, 2004, proposed rule. The following 
highlights some of the more notable changes made in the final rule.

A. Definitions

    In this final rule, HUD has revised definitions for affiliate, 
branch or branch office, education, HUD-approved housing counseling 
agency, housing counseling work plan, housing counseling action plan, 
housing goal, intermediary, local housing counseling agency, and 
subgrantee, and added definitions of housing counselor, multi-state 
organization (MSO), and participating agency.
    As discussed in more detail in section III of this preamble, HUD 
created the term ``multi-state organization'' because of the increasing 
number of local housing counseling agencies that have expanded beyond 
the definition of a local agency. The MSOs provide housing counseling 
services through a main office and branches, if applicable, in one 
state and branch offices located in two or more additional states. This 
definition was necessary because of the emergence of organizations that 
did not meet the existing definitions.
    For clarity, HUD has added the new definition of ``participating 
agency'' and used the new term throughout the regulatory text. 
Participating agencies are all housing counseling and intermediary 
organizations that participate in HUD's Housing Counseling program, 
including HUD-approved agencies, and affiliates and branches of HUD-
approved intermediaries, HUD-approved MSOs, and state housing finance 
agencies. HUD added this definition because the term ``HUD-approved 
agency'' does not adequately describe all organizations that 
participate in the program.
    In this final rule, HUD also included a definition of ``reverse 
mortgage,'' which means a mortgage that pays a homeowner loan proceeds 
drawn from accumulated home equity and that requires no repayment until 
a future time. The increasing demand for reverse mortgages, including 
Home Equity Conversion Mortgages (HECMs), demonstrates a related need 
for housing counseling about additional types of reverse mortgages. As 
a result, the term ``reverse mortgage'' has been utilized throughout 
this final rule.

B. Counseling Settings

    Although HUD believes that in-person, face-to-face counseling is 
ideal, HUD has revised the regulations at Sec.  214.300 to allow for 
alternative counseling settings when it is in the best interests of the 
client. Several commenters explained that when clients are facing 
foreclosure or eviction, they often do not have time or resources to 
meet face-to-face with a housing counselor at the agency's offices. 
Under these circumstances, the agency must arrange to meet with such 
persons at an alternative location or through an alternative format.
    In addition, agency facilities must meet, when applicable, 
accessibility requirements under section 504 of the Rehabilitation Act 
of 1973 (29 U.S.C. 794) and HUD's regulations at 24 CFR parts 8 and 9, 
as well as Title III of the Americans with Disabilities Act. There may 
also be circumstances where an agency will have to provide a person 
with a disability counseling in an alternative format or at an 
alternative location as a reasonable accommodation to the person's 
disability. The final rule requires that an agency's housing counseling 
work plan address

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alternative settings for the provision of housing counseling services.

C. Approval Criteria

    HUD has revised Sec.  214.103(f)(2) (Staff) of the proposed rule to 
provide greater flexibility to agencies in hiring staff, and the 
provision is now located at Sec.  214.103(g)(2). Under this final rule, 
for agencies seeking HUD approval, to maintain HUD approval, and to 
participate in HUD's Housing Counseling program, at least one-half of 
an agency's counselors must have the minimum 6 months counseling 
experience.
    Recognizing the expanding roles of housing counseling agencies, HUD 
also revised Sec.  214.103(k) of the proposed rule by removing the 
requirement that housing counseling agency facilities be located in the 
communities they serve. In this final rule, proposed Sec.  214.103(k) 
has been redesignated at Sec.  214.103(l). In addition, HUD has revised 
Sec.  214.103(l) to provide that agencies must make space available to 
provide housing counseling services, but are not required to limit the 
use of the space solely for the purpose of providing housing counseling 
services.
    HUD made an additional clarification in the list of ineligible 
activities at Sec.  214.103(c)(2). The final rule has been revised to 
provide that offenses that reflect upon the responsibility, integrity, 
or ability of housing counseling agencies to participate in housing 
counseling activities refers to a criminal offense that can be 
prosecuted at the local, state, or federal level. An example of such an 
offense would be if a member of the board of directors, the executive 
director, or an employee has been indicted or convicted of embezzling 
city, state, or federal funds.

D. Inactive Status for Housing Counseling Agencies

    This final rule also adds a new status for HUD-approved agencies 
that, for certain reasons, are temporarily unable to comply with the 
requirements necessary to be a HUD-approved counseling agency. When an 
agency is unable to continue to meet the requirements for a HUD-
approved counseling agency, HUD will remove an agency from the list of 
participating agencies until such time as the impediment to compliance 
is removed. Under current procedures, the HUD-approved agency that 
fails to meet the program requirements may be terminated and have to 
reapply for HUD approval. Therefore, this temporary inactive status 
would be less burdensome for agencies. The new provisions are located 
in Sec.  214.200 and are described in additional detail in section III 
of this final rule.

E. Client Management System

    The requirements for a client management system, proposed at Sec.  
214.319, were consolidated into the approval criteria in Sec.  214.103. 
In addition, HUD revised the requirements for a client management 
system so that participating agencies will utilize such a system for 
the collection of client-level information including, but not limited 
to, financial and demographic data, counseling services provided, and 
outcomes data. The system used must provide the counseling agency with 
the tools necessary to track and manage all counseling and educational 
activities associated with each client. Agencies must utilize a system 
that satisfies HUD's requirements and interfaces with HUD's databases.

F. Agency Workload

    Under Sec.  214.303 (Performance Criteria), HUD proposed that an 
agency's workload would be a minimum of 50 clients annually and also 
that an agency maintain funding that enables the agency to provide 
housing counseling to a minimum workload of 50 clients. In reviewing 
these related provisions, HUD determined that clarification and changes 
were necessary. First, HUD revised Sec.  214.303(b) to provide that the 
workload determination would be changed to a minimum of 30 clients 
annually. Similarly, HUD redesignated and revised Sec.  214.303(i) by 
restating the 30-client requirement and requiring that the agency 
maintain a level of funds that enables it to provide housing counseling 
to at least this required 30-client workload every year, whether or not 
the agency receives HUD funding.

G. Conflicts of Interest

    HUD has revised and redesignated the conflicts-of-interest 
provision in this final rule at Sec.  214.303(f) to make the provisions 
easier to understand and provide additional flexibility. The revised 
regulations prohibit directors, employees, and officers of HUD-approved 
housing counseling agencies and intermediaries from engaging in 
activities that create a real or apparent conflict of interest. A 
conflict, for example, could arise if these individuals or their 
spouse, child, general partner, or organization in which he or she 
serves as employee (other than with the HUD-approved counseling 
agency), or with whom he or she is negotiating future employment, has a 
direct interest in the client as landlord or creditor, or originates, 
has a financial interest in, services, or underwrites a mortgage on the 
client's property, owns or purchases a property that the client seeks 
to rent or purchase, or serves as a collection agent for the client's 
mortgage lender, landlord, or creditor.
    Further, the revised regulations prohibit the director, employee, 
or officer of a HUD-approved housing counseling agency or intermediary 
from referring clients to mortgage lenders, brokers, builders, or real 
estate sales agents or brokers in which the individual, his or her 
spouse, minor child, or general partner has a financial interest.
    The provisions require the agency, its staff, or any member of his 
or her immediate family to avoid any action that might result in, or 
create the appearance of, administering the housing counseling 
operation for personal or private gain, which includes providing 
preferential treatment to any organization or person; or undertaking 
any action that might compromise the agency's ability to ensure 
compliance with the requirements of this part and to serve the best 
interests of its clients. HUD may investigate agency practices and may 
take action to suspend or terminate the agency's approval.

H. Housing Counseling Fees

    Funding for housing counseling is a major concern among 
participating agencies. In a change in this final rule, HUD is 
clarifying that it will allow for participating agencies to accept 
funding from lenders, as long as the relationship does not create a 
conflict of interest and that the relationship is disclosed to the 
client (see Sec. Sec.  214.303 and 214.313).
    In addition, in the final rule, HUD revised the provisions for 
charging fees to clients. Under this final rule, agencies may charge 
reasonable fees to clients, as long as the fee does not place a 
hardship on the client. Acknowledging that a client's ability to pay a 
fee is based on factors beyond the client's income, HUD revised the 
requirement that a fee be based solely on the client's income. The 
housing counseling agency may make a determination about a client's 
ability to pay based on factors, including, but not limited to, income 
and debt obligations. Clients should not be turned away because of an 
inability to pay. Agency fee schedules, as well as determinations of 
clients' ability to pay, are subject to review by HUD during periodic 
monitoring conducted in accordance with Sec.  214.307. In another 
change from the proposed rule, HUD removed the provision that HUD would 
pre-approve an agency's fee schedule. Instead, HUD will review fee 
schedules during a review of an agency's application for

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approval or a performance review, in order to ensure that the fees are 
consistent with fees charged by similar agencies providing similar 
services.
    If a housing counseling client believes that he or she has been 
unreasonably denied access to counseling because of a fee or other 
dispute, the client should contact the local HUD field office or HUD 
Headquarters.

I. Recordkeeping

    HUD has removed the client and counselor signature requirement from 
Sec.  214.315. Although the action plan is an important document 
required under Sec.  214.300(a)(2), it is unnecessary and burdensome to 
require the plan to be signed by both client and counselor. HUD also 
removed the intake interview requirements at Sec.  214.315.
    In addition, HUD has revised Sec.  214.315(b) to expand the 
recordkeeping requirements so that the client file can be a paper file, 
an electronic file, or a combination. HUD believes that as housing 
counseling agencies increasingly utilize client management systems, 
client files will be a combination of electronic and paper files. HUD 
also revised Sec. Sec.  214.315(e) and (f) to clarify the requirements 
for client files and education files. Finally, HUD modified Sec.  
214.315(d) to include client income data among the client information 
that agencies collect.

J. Phased-In Implementation of New Regulations for Approved Counseling 
Agencies

    HUD recognizes that HUD-approved housing counseling agencies will 
be required to modify their procedures or adopt new protocols as a 
result of the regulatory changes made by this final rule. Although HUD 
believes the new requirements are necessary to increase the 
effectiveness of the Housing Counseling program, the Department also 
wishes to minimize the costs and regulatory burden of complying with 
the final rule on agencies that have been approved by HUD and are 
currently in full compliance with existing requirements. Accordingly, 
this final rule provides that housing counseling agencies approved by 
HUD on or before the effective date of this final rule have until 
October 1, 2007, to comply with the requirements of this final rule. 
Additionally, housing counseling agencies that have submitted 
applications to HUD as of the publication date of this final rule under 
the existing requirements and that are subsequently approved, even if 
the agency is notified of the approval after the effective date of the 
rule, also will have until October 1, 2007, to comply with the 
requirements in this final rule. All other agencies approved after the 
effective date must comply with the requirements of this part.

K. Other Changes

    Finally, in an effort to improve organization, HUD made minor 
changes in 24 CFR part 214 in this final rule. For example, HUD 
consolidated proposed subpart E, entitled Grants, into the funding 
requirements in Sec.  214.311. In addition, HUD clarified that 
compliance with applicable civil rights laws will be reviewed as part 
of the performance review under Sec.  214.307. Other minor changes to 
organization were made in subsections to improve organization of the 
regulations, but do not effectuate substantive changes.

III. Discussion of Public Comments on the December 23, 2004, Proposed 
Rule

    The public comment period on the proposed rule closed on February 
22, 2005. HUD received 16 public comments on the proposed rule. 
Comments were received from housing counseling agencies, trade 
associations, and other interested organizations. The following 
provides a discussion of key issues raised by public commenters, and 
HUD's responses to these issues.

A. Definitions

    Comment: For consistency, HUD should revise the definition of 
``affiliate'' in the final rule to require that an affiliate be ``duly 
organized and existing as a tax exempt, nonprofit, 501(c)(3) 
organization.''
    HUD response: HUD agrees with the commenter that the regulatory 
language concerning definitions and nonprofit status must be 
consistent. Therefore, HUD revised Sec.  214.3 in this final rule so 
that the definition of ``affiliate'' means an organization connected 
with, but separately incorporated from, a regional or national 
intermediary, or state housing finance agency (SHFA), for the purposes 
of its HUD-related Housing Counseling program. An affiliate is defined 
as: (1) Duly organized and existing as a tax-exempt nonprofit 
organization, (2) in good standing under the laws of the state of the 
organization, and (3) authorized to do business in the states where it 
proposes to provide housing counseling services.
    HUD also clarified Sec.  214.103(a), (Nonprofit and Tax-exempt 
Status), which applies to affiliates, to require that a housing 
counseling agency must function as a private or public tax-exempt 
nonprofit organization, or be a unit of local, county, or state 
government. The agency must submit evidence of nonprofit status and 
tax-exempt status under section 501(a), pursuant to section 501(c) of 
the Internal Revenue Code of 1996 (26 U.S.C. 501). Units of local, 
county, or state governments must submit proof of their authorization 
to provide housing counseling services.
    Comment: In the final rule, HUD should revise the term ``client 
counseling plan'' to ``client action plan.''
    HUD response: HUD agrees with the comment that ``action'' plan is 
more descriptive of the type of plan that counseling agencies must 
produce under these regulations, and has, therefore, replaced the term 
``Client Counseling Plan'' with ``Action Plan.'' The text of the 
proposed definition remains unchanged; only the label has been revised 
to ``Action Plan.''
    Comment: The definition of ``education'' in the proposed rule 
appears to unintentionally exclude legitimate educational services. In 
the proposed rule, ``education'' was defined as ``information provided 
in a group or classroom setting.'' One commenter suggested removing the 
phrase ``in a group or classroom setting.''
    HUD response: HUD did not accept this comment. The purpose of this 
definition is to distinguish between in-person housing counseling 
services to individuals and members of their household and educational 
services that are provided to groups of individuals. An education 
course or workshop differs from counseling in that it is usually 
conducted in a group setting and it is not tailored to the unique 
circumstances of the individual. Individualized counseling is more 
extensive than general education, because it is more rigorous and 
involves one-on-one and longer-term relationships with a housing 
counselor.
    The commenter requested that the definition be more inclusive of 
activities such as distance learning and home study programs, which may 
be the only practical action for people with inflexible schedules or 
which may be necessary as a reasonable accommodation for persons with 
disabilities. HUD recognizes that advances in computer technologies 
allow for the development of distance learning curricula that can 
potentially reach individuals living in rural areas and individuals 
with mobility disabilities. HUD believes, however, that the use of 
distance learning curricula is limited at this time in the housing 
counseling industry and that the majority of education sessions are 
held in a group or classroom setting.
    Comment: HUD should more narrowly define the term, ``housing

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goal.'' One commenter suggested a revised definition that counselors 
must fully explain to clients the barriers to achieving their goals and 
work with clients to identify goals more reasonable to their situation. 
This commenter further recommended that HUD revise the definition to 
state that counselors could help clients set short- and long-term 
goals, which may lead to the achievement of their original objective.
    HUD response: HUD agrees with the commenter and has revised the 
definition in this final rule to state that housing goal means a 
realistic, short-, or long-term objective set by the client, with 
advice from a housing counselor. This revised definition takes into 
account that an agency can work with a client to set short-term and 
long-term goals to meet a housing objective that may be difficult for 
the client to meet on a short-term basis.
    Comment: To reflect more accurately the meaning of the term, in the 
final rule, HUD should change the term ``work plan'' to ``housing 
counseling plan.''
    HUD response: HUD believes the term ``work plan,'' as presented in 
the proposed rule, accurately describes the function of the document, 
which describes the proposed housing counseling services of the agency, 
or the network of agencies associated with an intermediary.
    Comment: The rule should provide geographic requirements for 
maintaining national and regional status. Specifically, the commenter 
suggested that the definition of national intermediary be revised to 
indicate that an intermediary serves at least one-half of the states or 
at least 26 states. The commenter further suggested that the definition 
of regional intermediary should be revised to indicate that a regional 
intermediary has a physical office in fewer than 26 states.
    HUD response: HUD disagrees with the commenter. HUD believes it is 
too limiting to define national and regional intermediaries, in this 
regulation, specifically by the number of states. For example, such a 
strict definition does not take into account the potential breadth of 
services a national intermediary may be providing in multiple regions 
throughout the country. In response to this comment, however, HUD has 
adopted minor changes to provide clarity in the definition of 
``intermediary.''
    Comment: The final rule should define the expectation of what 
percentage of an intermediary's 12-month award should be designated as 
pass-through funds to intermediary affiliates.
    HUD response: HUD did not adopt this revision as recommended. The 
primary purpose of HUD housing counseling grant funds is to support the 
direct delivery of housing counseling services. Since administrative 
needs vary by intermediary, HUD believes that the establishment of a 
designated pass-through percentage would be unreasonably restrictive 
for intermediaries. For example, a newly approved intermediary may need 
to devote more resources to training and technical assistance than an 
established intermediary would devote to administrative resources.
    Comment: HUD should revise the definition of Local Housing 
Counseling Agency (LHCA) to indicate that an LHCA has only one location 
or a main office with one or more branch offices within the same state 
or no more than two contiguous states.
    HUD response: HUD agrees with the commenter and has revised the 
definition of LHCA so that it reflects that an LHCA may have a main 
office, and one or more branch offices, in no more than two contiguous 
states. Moreover, a recent trend in the industry is for agencies to 
merge in order to enjoy economies of scale regarding accounting and 
other costs. Accordingly, in order to accommodate this new model of 
agency, and support the cost savings associated with them, HUD added a 
definition in Sec.  214.3 for ``multi-state organizations.''
    Comment: In the final rule, HUD should provide additional guidance 
around acceptable forms of outreach and marketing activities.
    HUD response: The final rule now has been revised by adding a 
definition at Sec.  214.3 of ``marketing and outreach'' (see also Sec.  
214.300(c)(2)). Under this definition, marketing and outreach mean the 
provision of information to raise awareness about critical housing 
topics, such as predatory lending or fair housing issues, and the 
availability of housing counseling and other forms of assistance, 
including, but not limited to: Distributing materials; presenting at 
community events; conducting informational campaigns such as public 
service announcements (PSAs), advertisements, or other forms of media 
campaigns; and advocating with lenders and other industry partners.

B. Approval Criteria

1. One Year in Operation
    Comment: HUD should clarify whether agencies certified by HUD-
approved intermediaries are subject to the provision that an agency 
must have been in operation for at least one year before it can be 
considered for HUD certification.
    HUD response: To be considered as part of an intermediary's 
approval application, and to be eligible to receive HUD housing 
counseling sub-grant funding from an intermediary, MSO, or SHFA, 
affiliates and branches must be in operation for at least one year. To 
clarify this requirement, HUD revised Sec.  214.103 to provide that the 
criteria for approval apply to all agencies, including, for SHFAs and 
intermediaries, the branches and affiliates in the HUD portion of their 
Housing Counseling program. In addition, an intermediary must have 
operated in an intermediary capacity for at least one year. To be 
considered part of an intermediary's approval application, and to 
participate in the HUD-approved portion of the intermediary's Housing 
Counseling program, affiliates and branches must have successfully 
administered a Housing Counseling program for at least one year. HUD 
has established this criterion in order to ensure that any entity that 
is listed on HUD's Web site has at least one year of experience 
administering a Housing Counseling program that demonstrates at least a 
basic level of knowledge, capacity, and experience in providing these 
services. However, this does not prohibit SHFAs and intermediaries from 
developing the capacity of new organizations, with the intention of 
including them in the HUD portion of their program once they meet the 
experience requirement and other requirements.
2. Ineligible Participants
    Comment: In the final rule, HUD should provide an explanation about 
what constitutes ``offenses that reflect upon the responsibility, 
integrity, or ability of a housing counseling agency to participate in 
housing counseling activities.''
    HUD response: At Sec.  214.103(c)(2), the final rule clarifies that 
offenses that reflect upon the responsibility, integrity, or ability of 
housing counseling agencies to participate in housing counseling 
activities refers to a criminal offense that can be prosecuted at a 
local, state, or federal level. An example of such an offense would be 
if a member of the board of directors, the executive director, or an 
employee has been indicted or convicted of embezzling city, state, or 
federal funds.
    Comment: The provision at Sec.  214.103(c)(3), which prohibits an 
agency from being ``subject to unresolved findings as a result of HUD 
or other government audit or investigation,'' is too broad and should

[[Page 55642]]

be narrowed or eliminated in the final rule. One commenter suggested 
the provision could result in government agencies prolonging their 
findings and appeals process, resulting in denying a program 
participant timely due process and effectively eliminating a counseling 
agency from the program, thus creating harm to the agency and clients. 
The commenter recommended that HUD provide all audit or investigation 
findings to all applicable parties within 90 days of initiating the 
investigation, with the counseling agency having 30 days to respond to 
HUD and or the government agency filing the findings having 30 days to 
issue its final ruling.
    HUD response: HUD disagrees. HUD undertakes considerable effort to 
complete an audit or investigation in a timely manner to avoid undue 
disruption to agency operations or services being provided to clients. 
However, the length of an audit or an investigation varies because of 
the nature, complexity, and individual circumstances related to a 
specific audit or investigation.
    Comment: The term ``generally-accepted practices of prudent 
agencies'' is ambiguous and could lead to uneven and inconsistent 
determinations by reviewers of how a counseling agency conducts its 
operations, even though the agencies are operating within the 
guidelines of the HUD handbook and regulations.
    HUD response: HUD agrees that this provision may elicit confusion 
and it has been removed.
3. Six Months Experience as a Counselor
    Comment: This requirement that a counselor must have at least 6 
months of previous experience as a housing counselor should be removed 
because it is too narrow. Two commenters stated that HUD certification 
should depend on the agency and not the individual counselor, since it 
is the agency's responsibility to hire capable staff. It may be 
advantageous for an agency to hire staff from other fields, because 
they bring additional skills to the position.
    HUD response: HUD agrees with the commenter that it is the agency's 
responsibility to hire capable staff. HUD also agrees that it may be 
difficult to hire and maintain an entire staff with at least 6 months 
of experience per person. In response to these comments, HUD has 
revised the requirement that all housing counseling agency staff must 
have a minimum of 6 months of experience as a housing counselor. The 
revised provision at Sec.  214.103(g)(2) requires that one-half of an 
agency's counselors must have the minimum of 6 months of experience.
    Comment: The 6-month housing counselor experience requirement 
should be extended 6 months to one year for agencies that are seeking 
HUD approval for the first time. This commenter further stated that the 
counselor experience requirement should be limited to obtaining HUD 
approval and not be required in order to maintain HUD approval. The 
commenter suggested that every HUD-approved agency should have 
experienced staff, but this should not inhibit them from hiring and 
training staff new to the housing counseling field.
    HUD response: HUD agrees with the commenter that every HUD-approved 
agency should have experienced housing counselors. Agencies are 
encouraged to hire and train new staff. It is essential, however, for 
new housing counseling agencies that are seeking HUD approval and for 
all participating agencies to maintain approval, to have at least half 
of its housing counselors with at least 6 months of experience.
4. Contracts or Agreements To Provide Eligible Housing Counseling 
Services
    Comment: In the final rule, HUD should allow sub-grantees and 
affiliates of intermediaries to contract part or all of their 
counseling services, if there is not another HUD-approved local agency 
serving the geographic area. This commenter stated that to reach a 
rural or underserved area, reach particular subpopulations, and 
contract for services not currently offered by the affiliate, each 
requires a contract with a sub-grantee to provide part or all of that 
counseling service.
    HUD response: HUD disagrees. The rule as proposed would allow 
housing counseling agencies or intermediary housing counseling 
organizations to contract with housing counseling services in 
geographic areas where a need for housing counseling services is 
demonstrated and no HUD-approved housing counseling agency or branch, 
affiliate, or sub-grantee exists.
    Comment: One commenter suggested that HUD revise the final rule to 
provide that, in the event that HUD determines a geographic area of the 
country is not served or underserved by an LHCA, or a regional or 
national intermediary, HUD will contract with a national intermediary 
to provide counseling services through their existing network of 
branches, affiliates, and sub-grantees. In this case, the commenter 
suggested it is permissible for a national intermediary to offer 
housing counseling services exclusively by telephone or the Internet.
    HUD response: HUD agrees. No change in the rule is necessary. The 
rule as proposed and as adopted in this final rule would allow housing 
counseling agencies or intermediary housing counseling organizations to 
contract out housing counseling services in geographic areas where a 
need for housing counseling services is demonstrated and where no HUD-
approved housing counseling agency, or its branches or affiliates, 
exists.
    Comment: HUD should identify which Office of Management and Budget 
(OMB) Circulars and regulations are applicable.
    HUD response: HUD agrees and has revised this provision to refer to 
24 CFR parts 84 and 85. Parts 84 and 85 contain the uniform grant 
requirements for nonprofit organizations and states, respectively, and 
describe in detail the applicable OMB Circulars.
5. Facilities
    Comment: The final rule should include more flexibility than 
``agencies must be located in communities they serve.'' One commenter 
stated that their agency covers a broad area and the clients and 
counselors meet ``mid-point.''
    HUD response: HUD agrees with this commenter that the proposed 
regulation necessitated additional flexibility and has revised Sec.  
214.103(l). The revised regulation recognizes the expansion that has 
taken place among participating agencies and that the proposed 
requirement for facilities to be located in the communities they serve 
may unduly limit an agency's ability to serve its clients. Therefore, 
in this final rule, HUD has removed this requirement.
    Comment: The final rule should include a provision at Sec.  214.103 
that states, ``an agency may provide more than housing counseling 
services in the same office space.'' This commenter stated that many 
HUD-approved housing counseling agencies are multi-purpose agencies 
operating out of one location. It is an unreasonable burden to require 
separate facilities or portions of a building when one part-time 
counselor can easily meet the HUD minimum workload requirement.
    HUD response: HUD believes that it is important for agencies to 
provide office space that is dedicated to the provision of housing 
counseling to clients. HUD acknowledges, however, that office space may 
need to be used for multiple purposes. Therefore, HUD has revised Sec.  
214.103(l) to provide that agencies must make space available to 
provide housing counseling services, but is not

[[Page 55643]]

requiring them to limit the use of the space solely for the purpose of 
providing housing counseling services.
    Comment: To ensure client privacy, a provision should be added in 
this final rule stating that housing counselors should have access to 
private offices or meeting facilities that allow for an uninterrupted 
and confidential meeting between counselor and client. This commenter 
stated that hard copies of client files should be kept in locked filing 
cabinets and that electronic client files should be kept secure and 
accessible only by authorized employees.
    HUD response: It is important for housing counseling agencies to 
provide an environment that provides privacy for in-person counseling 
and confidentiality of client records. Section 214.103(l) requires that 
housing counseling agencies provide such a space. In response to the 
request to maintain the privacy and confidentiality of electronic 
files, HUD has revised Sec.  214.103(e) in this final rule to require 
that HUD-approved agencies maintain the confidentiality of each 
client's file, both electronic and paper, in accordance with safeguards 
for client files at Sec.  214.315.
6. Housing Counseling Work Plan
    Comment: If an agency does not provide in-person counseling beyond 
its primary education services, it should only be required to provide 
referrals to an affiliate or partner that can provide more specialized 
in-person services.
    HUD response: HUD disagrees, because it considers in-person 
counseling a key component to the work of a HUD-approved counseling 
agency.

C. Termination of HUD-Approved Status

    Comment: The final rule should explain what is meant by ``best 
interests of the Department.''
    HUD response: HUD believes that ``best interests of the 
Department'' may not appropriately describe HUD's actions and has 
revised the final rule to provide that HUD-approved status, and 
participating agencies, may be terminated for good cause. The provision 
is designed to account for unforeseen circumstances or conditions that 
might warrant termination of HUD approval.
    Comment: HUD should create an exception for staff turnover within 
the agency in the ``lack of capacity'' provision, as long as new staff 
is hired within a reasonable time.
    HUD response: Agency ``inactive status'' that HUD has added to the 
final rule addresses this type of situation. An agency placed in 
inactive status because of lack of sufficient and experienced staff 
would not be listed on HUD's Web site until adequate staffing and 
capacity is restored. As discussed in section II, HUD has added new 
provisions in this final rule in response to these comments.

D. Counseling Services

1. Basic Requirements--In-Person Counseling
    Comment: In-person counseling is an important aspect of the Housing 
Counseling program. One commenter recommended that this provision be 
preserved in the final rule. Alternatively, four commenters stated that 
the requirement for ``in-person'' counseling is outdated and not in the 
best interest of the client.
    HUD response: While in-person counseling between the counselor and 
the client is the form of counseling preferred by HUD, HUD recognizes 
that in many cases in-person counseling is not practical due to 
distance, health, transportation, crisis situations, and other issues. 
In addition, there may be circumstances where a person with a 
disability needs to receive counseling in an alternative setting or 
format as a reasonable accommodation to that person's disability. 
Therefore, if the one-on-one counseling setting is not practical, the 
housing counseling work plan should describe the housing counseling 
agency's plans to provide counseling in alternative settings where 
needed. Consequently, HUD revised Sec.  214.300(a) and Sec.  214.103(m) 
to allow for alternatives to in-person counseling where the counseling 
agency and the client mutually agree to an alternative setting.
    Comment: Provisions in the final rule should acknowledge that it is 
often impossible for housing counselors to follow up with clients, 
especially when they are homeless.
    HUD response: HUD understands that many factors may make it 
impossible for counselors to reach clients. The regulatory provision, 
as proposed, required that the agency ``follow-up'' with clients. HUD 
believes that agencies should continue to make reasonable efforts to 
reach clients, when possible, to assure that the client is progressing 
toward his or her housing goal, to modify or terminate housing 
counseling, and to learn and report outcomes.
2. Approved Housing Counseling Activities
    Comment: The final rule should present a clear distinction between 
counseling ``activities and topics.''
    HUD response: In this final rule, HUD revised Sec.  214.300 to 
better clarify housing counseling services. The basic requirement is 
for agencies to provide counseling to current and potential homeowners 
and tenants to assist them in improving their housing conditions and in 
meeting the responsibilities of homeownership or tenancy. Section 
214.300(c) has been revised to better illustrate approved housing 
counseling education and outreach topics.
    Comment: The final rule should more broadly define housing 
counseling activities. Activities limited to single-family houses, 
condominiums, and cooperatives are too narrow to meet the existing 
housing opportunities. One commenter suggested that manufactured homes 
should be added to the list.
    HUD response: HUD agrees that the universe of housing opportunities 
is broad and not exhaustively covered by the examples in the 
regulations. HUD points out, however, that the list of education and 
outreach topics is not intended to cover every housing opportunity. 
Housing counseling agencies are encouraged to tailor housing counseling 
activities to the needs of the individual client.

E. Performance Criteria

1. Workload
    Comment: The final rule should clarify what is meant by the client 
base as ``determined by HUD.'' One commenter recommended that this 
provision be revised and published for additional public comment, 
because the methodology for determining measures of success is crucial 
to intermediaries' and agencies' ability to compete for funding.
    HUD response: Consistent with the requirements for HUD approval, 
HUD has revised the performance criteria workload requirement at Sec.  
214.303(b) to clarify that the minimum workload in order to maintain 
HUD approval is 30 clients annually.
2. Client Referrals
    Comment: Three commenters stated that the requirement that all HUD-
approved agencies must accept all referrals from HUD and HUD-approved 
agencies is too broad. One commenter suggested that agencies can only 
serve as many clients as possible and that workloads may vary. Another 
commenter suggested adding a provision that the agency must accept the 
referral if it has the resources to do so.
    In addition, another commenter recommended that the language of the 
proposed rule could lead to a circle of

[[Page 55644]]

inappropriate referrals and discourage use of community-based resources 
that are not HUD-approved. This commenter suggested the language be 
modified, as follows: ``If an agency does not have the experience or 
skills to meet the needs of a client, it must refer the client to 
another appropriate HUD-approved agency or other appropriate nonprofit 
organization.''
    HUD response: HUD understands that agencies often have limited 
resources; however, it is important that all clients are served. In 
cases where the agency does not offer the unique services requested by 
the client or does not have sufficient resources, the agency must refer 
the client to another HUD-approved housing counseling agency, 
preferably in the area. If a HUD-approved agency is not available in 
the client's area, the client should be referred to another HUD-
approved agency outside the client's area that can help the client meet 
his or her needs.
3. Conflicts of Interest
    Comment: The final rule should be revised to account for unique 
challenges of providing HECM counseling. One commenter presented a 
description of its own unique conflict-of-interest challenges that 
require solutions that may not fit other types of housing counseling. 
This commenter noted that lenders often provide donations or other 
monetary compensation to counseling agencies. The commenter cautioned 
that agencies that accept closing-payments from lenders must choose 
between serving client interests and serving lender interests (and, by 
association, the counseling agency's interests).
    HUD response: HUD believes that counseling agencies should not have 
to choose between serving client interests and serving lender 
interests. Whether the agency is counseling potential HECM borrowers or 
a homeowner facing foreclosure, the counseling agency must be careful 
to follow the program regulations, and, in particular, the conflicts-
of-interest requirements. These requirements are designed to preserve 
and protect the relationship between the client and the agency. In 
response to this and other comments concerning conflicts of interest, 
HUD has revised Sec.  214.303(f) in order to allow for additional 
flexibility. See section II.G for a detailed description of the revised 
conflicts-of-interest requirements.
    Comment: Many agencies have sought lender support, because of 
insufficient funding from HUD, and because such support would create 
conflicts of interest. One commenter suggested that charging a fee to 
the client would remove the reliance on lenders for support and 
therefore remove a potential conflict of interest.
    HUD response: HUD has revised the conflicts-of-interest provision 
in Sec.  214.303 so that accepting resources from lenders, within 
certain circumstances, would not create a conflict. Under the revised 
regulations, individuals who are directors or employees, or their 
family members, of a housing counseling agency may not accept a fee or 
any other consideration for referring a client to mortgage lenders, 
brokers, builders, or real estate sales agents or brokers. Further, the 
regulations require the agency, its staff, or any member of their 
immediate family to avoid any action that might result in, or create 
the appearance of, administering the housing counseling operation for 
personal or private gain; providing preferential treatment to any 
organization or person; or undertaking any action that might compromise 
the agency's ability to ensure compliance with the requirements of this 
part and to serve the best interests of its clients. Accordingly, 
within these parameters, as well as the requirements of Sec.  
214.313(e), an agency may accept fees from lenders.
    Comment: The definition of a conflict of interest should not 
prevent housing counseling agencies from providing opportunities in 
mortgage underwriting, pricing, houses, or services to its clients 
because those opportunities are provided by the same agency as the 
housing counseling.
    HUD response: The agency must maintain the ability to represent 
fully the best interests of the client and the conflicts-of-interest 
requirements are in place to protect both the agency and the client. 
HUD believes, however, that the conflicts-of-interest requirements 
should not limit the housing counseling agency from providing 
additional, related services. Therefore, as discussed above, HUD has 
revised the conflicts-of-interest provision to allow for additional 
flexibility in agency activities.
4. Disclosure Requirements
    Comment: A commenter stated that agencies receive hundreds of 
inquiry calls on a daily basis, and that providing full disclosure 
statements to all clients is an ``incredible burden.'' This commenter 
added that providing clients with a list of ``alternative services, 
programs, and products'' defeats the purpose of being a HUD-approved 
housing counseling agency.
    HUD response: HUD believes that the need for adequate disclosure 
far outweighs the corresponding burden, but acknowledges the challenges 
faced by agencies. Accordingly, to minimize the burden on agencies, HUD 
has removed from Sec.  214.303(f) the reference to ``potential 
clients.''
    Comment: HUD's proposed disclosure provision is too broad and vague 
to make complete compliance possible. The commenter recommended that 
agencies be required to disclose only relationships that are likely to 
have a significant impact on the specific client. Disclosing exclusive 
partnerships not relevant to a particular client or of minimal impact 
serve no practical purpose and may confuse clients.
    HUD response: HUD believes that full disclosure of relationships is 
good business practice and promotes the highest ethical standards in 
these agencies supported by federal funds. Because not every potential 
conflict is foreseeable, the disclosures described in the proposed rule 
have been preserved in this final rule.
    Comment: In the final rule, HUD should address lender fee-for-
service relationships with housing counseling agencies. These are 
common relationships and HUD should address and provide guidance for 
lender and housing counseling agency fee-for-service relationships.
    HUD response: HUD agrees with the commenter. As discussed in 
section II of this preamble, HUD has revised the funding provisions at 
Sec.  214.313 to allow for alternative funding sources, including 
charging fees to clients and accepting fees from lenders.
5. Staff
    Comment: HUD should define the monitoring activities expected to be 
utilized for staff supervision, as well as the basic requirements of 
how those monitoring activities should be documented.
    HUD response: HUD has revised the regulation to provide that 
housing counseling agencies must monitor their staff on an annual 
basis. HUD believes that housing counseling agencies should adequately 
supervise their staff. It is within the individual counseling agency's 
discretion to determine the manner in which to monitor its staff.

F. Funding

    Comment: The final rule should be revised to allow for additional 
flexibility in the funding provision. This commenter explained that 
most affiliates in their network have the resources to meet the 
requirement. This commenter stated, however, that in some cases, a 
national organization has been involved that allows some outside match 
of other agencies, which in turn allows participation of other 
affiliates of national organizations that would not

[[Page 55645]]

have otherwise been able to participate because they have no or very 
limited resources.
    HUD response: HUD has revised Sec.  214.303(i) in order to improve 
clarity and compliance. In the final rule, HUD removed the provision 
that would have required agencies to maintain a level of funds that 
enable an agency to serve a minimum of 50 clients each year. HUD 
recognized that a minimum workload of 50 clients each year raised 
compliance concerns among small agencies. Therefore, the revised Sec.  
214.303(i) requires that a participating agency maintain a level of 
funds that enables it to provide housing counseling to at least 30 
clients every year, whether or not the agency receives HUD funding. The 
required workload is consistent with Sec.  214.303(b).
    Comment: HUD should provide additional explanation about how the 
required workload of ``fifty clients every year whether or not the 
agency receives HUD funding'' was deemed appropriate.
    HUD response: The 50-client workload requirement was originally 
instituted to help ensure that HUD-approved agencies had sufficient 
resources to handle referrals through HUD's Web site and interactive 
voice response (IVR) system. HUD agrees with the commenter that this 
provision may disqualify small agencies that provide intensive services 
to a relatively small number of individuals. Therefore, HUD has revised 
the funding workload requirement to make it consistent with the 
workload requirement of Sec.  214.303(b). This provision provides that 
the minimum workload is 30 clients annually. Previously, the 
requirement served to help ensure that agencies had the capacity to 
handle referrals through HUD's Web site and the IVR system. However, 
the alternative funding opportunities created by this regulation help 
ensure that agencies will have the necessary resources, and assuages 
these concerns.

G. Agency Profile Changes

    Comment: One commenter stated that HUD should limit the requirement 
to report agency changes to include phone number and location. The 
commenter explained that in a national network, it is difficult to 
monitor staff changes.
    HUD response: HUD disagrees. HUD needs to be notified of staff 
changes to ensure that agencies have the capacity to adequately serve 
the individuals that may contact them through HUD's Web site and the 
IVR system. The process and systems through which these changes occur 
are undergoing significant changes. It is imperative that agencies 
update and verify agency profile information in a timely manner, 
whenever this information is posted on HUD's Web site and communicated 
through the IVR.
    Comment: HUD should require, in the final rule, agencies to update 
profiles during the biannual submission of form HUD-9902 data. One 
commenter suggested the omission of ``within 15 days'' and replacing 
with ``biannually.''
    HUD response: HUD disagrees that these changes only be made at the 
time of HUD-9902 submission, which is quarterly. Since agency profile 
information is posted on HUD's Web site of HUD-approved agencies, 
changes to an agency's profile must be made by the agency immediately. 
However, HUD agrees that while submitting the form HUD-9902, and at 
other times during the year, agencies should periodically verify and 
validate that their profile information is accurately displayed in the 
system and on HUD's Web site.
    Comment: Two commenters recommended that the final rule require 
only changes in management to be reported to HUD. The commenters 
recommended that agencies not be required to report every staffing 
change.
    HUD response: HUD disagrees. As noted in the response to an earlier 
comment, HUD needs to be apprised of staff changes to ensure that 
agencies have the capacity to adequately serve the individuals that may 
contact them through HUD's Web site and the IVR system.

H. Performance Review

    Comment: HUD should provide meaningful and clear language that all 
HUD reviewers and monitors use consistent monitoring guidelines. The 
commenter recommended that when matters of interpretation arise as to 
whether an agency is in compliance or not, HUD Headquarters provide the 
final determination.
    HUD response: HUD agrees with the commenter that all reviewers 
should use consistent monitoring guidelines. HUD disagrees that the 
language in this section be revised as the commenter proposes. HUD will 
continue to work with field staff so that monitoring procedures are 
administered consistently across the country. HUD Headquarters makes 
the final determination when policy-related issues arise.

I. Fees

    Comment: Three commenters suggested that HUD-approved fee schedules 
are unreasonable and unnecessary. One commenter asked how HUD will 
determine what fee is ``reasonable.'' Another commenter recommended 
removing this provision, because the rule otherwise provides clear 
guidance for establishing a fee schedule; the approval process is 
burdensome and would likely cause a delay in implementation; HUD would 
have an opportunity to review and approve a fee schedule during the 
performance review; and it is unclear how this procedure would 
translate to intermediaries. Another commenter suggested that the fee 
schedule be made part of the housing counseling plan and that any 
changes should be reported to HUD for review. A different commenter 
opined that agencies should be required to submit fee schedules to HUD 
for review, but not for approval.
    HUD response: HUD agrees that HUD approval of fee schedules from 
the rule is unnecessary, and has revised Sec.  214.313 accordingly. As 
described in section II, HUD removed the requirement that agencies must 
submit fee schedules for HUD approval. HUD will review fee schedules 
during a review of an agency's application for approval or a 
performance review, in order to ensure that the fees are consistent 
with fees charged by similar agencies providing similar services.
    Comment: The final regulations should be clear that housing 
counseling agencies are not prohibited from charging fees based on 
value of their services on a loan-by-loan basis. HUD should add a 
provision that would allow lenders to cover the client's fee when the 
client is unable to pay.
    HUD response: HUD encourages housing counseling agencies to seek 
local funding, including lending or real estate organizations, in 
addition to units of local government. Agencies must assure that any 
arrangements do not violate the conflicts-of-interest provisions in 
Sec.  214.303(e). In addition, HUD has revised Sec.  214.313(e) to 
allow for lender payments, provided that the relationship with the 
lender is disclosed to the client and that the arrangement does not 
violate the provisions regarding conflict of interest.
    Comment: To ensure quality, availability, and independence of 
consumer HECM counseling, agencies should be able to charge a fee to 
borrowers. One commenter suggested financing the fee by dedicating a 
small part of the HECM mortgage insurance premium; capping the lender 
origination fee in a way that frees up an amount equal to a borrower 
counseling fee; or instituting a separate ``stand alone'' fee paid at 
closing out of loan proceeds, if statutory prohibitions bar the first 
two options.
    HUD response: HUD agrees with the commenter that agencies should be 
able

[[Page 55646]]

to charge a fee to HECM borrowers, if the cost does not create a 
financial hardship. However, the Department is not prepared to 
institute the financing of the fee by either of the first two methods 
proposed by the commenter. The first method has financial implications 
on the Federal Housing Administration's (FHA) capital ratio, and 
further analysis would be necessary to determine if this is a 
financially viable option. The second method has broader implications 
on an FHA-approved lender's fee structure.
    However, instituting a separate ``stand alone'' fee paid at closing 
out of loan proceeds may provide a solution for clients that choose to 
move forward and obtain a HECM, but this solution does not cover the 
costs of counseling for those clients that decide not to obtain a HECM. 
HUD continues to work in conjunction with industry partners to solve 
this funding gap and ensure adequate funding for HECM counseling.
    Comment: A counseling fee should be instituted only if it is linked 
to specific steps to improve the quality and independence of HECM 
counseling.
    HUD response: HUD is taking significant steps to improve the 
quality of reverse mortgage counseling. For example, an existing $7.75 
million training grant is delivering quality reverse mortgage 
counseling training to many counselors from HUD-approved agencies. HUD 
will undertake additional measures as it determines is appropriate to 
improve the effectiveness and quality of counseling provided to 
homeowners, including HECM borrowers.
    Comment: HUD must ensure that agencies will be paid for HECM 
counseling regardless of whether their clients take out a loan. This 
commenter suggested that to eliminate any incentive for a counselor to 
limit, downplay, or omit information, HUD must institute a borrower 
counseling fee if it also provides a way to pay these agencies for HECM 
counseling that does not result in a HECM closing. This commenter also 
stated that HUD should prohibit lenders from paying a counseling fee on 
behalf of their HECM borrowers.
    HUD response: HUD has not revised the rule in response to this 
comment, but will take the commenter's suggestion under further 
consideration. For clients who decide not to obtain a HECM, the 
Department continues to work in conjunction with industry partners to 
solve this funding gap and ensure adequate funding for HECM counseling.
    Comment: One commenter recommended that the provision concerning 
approval of agency reimbursement for the cost of credit reports, as 
long as it is not a hardship to the client, should be preserved in the 
final rule. In contrast, two commenters stated that the credit report 
is a service to the client, but that it is not education or housing 
counseling service, and recommended removing the provision.
    HUD response: This final rule adopts the provision in the proposed 
rule regarding credit reports. HUD believes it is appropriate to 
address the issue of fees related to the provision of credit reports to 
clients.
    Comment: In setting housing counseling fees, the crucial factors 
are a client's need and ability to pay, and not merely his or her 
income.
    HUD response: HUD agrees and has revised Sec.  214.313. HUD has 
removed from the final rule the proposed requirement that agencies 
charge fees on a sliding scale based on the client's income. 
Accordingly, agencies may charge fees to clients, as long as the fees 
do not create a financial hardship for the client, and the agency must 
provide services at no cost to those clients who cannot afford to pay.
    Comment: Charging fees may have unforeseen, negative impacts on 
client counseling by increasing or decreasing client interest depending 
on whether an agency charges a fee. One commenter suggested that HUD 
assess the ability of housing counseling agencies to create additional 
revenue building services by engaging in fee-generating services, such 
as allowing agencies to originate loans, including lending incentives.
    HUD response: HUD encourages agencies to develop a diversified 
funding base. To facilitate this, the final rule permits the charging 
of fees, but also explicitly states that agencies must provide 
counseling without charge to persons who cannot afford the fees. 
However, the rule does not require that the agency charge fees. HUD 
does not oppose counseling agencies getting involved in other revenue-
generating activities, including loan origination, provided all 
requirements regarding conflict of interest and disclosure are adhered 
to and the agency's activities are in the best interest of the client.

J. Recordkeeping

    Comment: Three commenters stated that the Client Action Plan is an 
important document, but it is unnecessary and expensive to require the 
plan to be signed by both the client and counselor and maintained on 
file for 3 years. Two of these commenters explained that a signed copy 
does not obligate the client to adhere to any counseling suggestions 
and merely creates additional paperwork for the file.
    HUD response: HUD agrees with the commenters and has removed the 
client and counselor signature requirement from Sec.  214.315.
    Comment: HUD should expand the term ``hardship'' to allow for 
``client preference.'' This commenter stated that, especially with 
possible foreclosure, a client may seek and prefer help over the 
telephone. Another commenter stated that this section's use of 
``hardship'' is inconsistent with the provisions proposed at Sec.  
214.300.
    HUD response: HUD agrees with the commenters. Clients may prefer 
help by the telephone, particularly in the case of foreclosure 
prevention counseling when time is a critical factor. In addition, some 
individuals may request co