The budget deal that’s keeping the federal government running slashed the $88 million that the Department of Housing and Urban Development grants to housing counselors, a move that could raise costs for those services or wipe them out in some areas.

The money enabled the counseling agencies to offer their services — everything from advice on foreclosure prevention to rental assistance — free of charge or for a small fee. But congressional lawmakers concluded the money was not well spent.

At a recent hearing, Rep. Tom Latham (R-Iowa) criticized HUD for taking too long to distribute the grants. Latham also said the program is too similar to a federally funded foreclosure-prevention initiative run by NeighborWorks America.

The cuts come in the midst of a housing crisis that has left many homeowners in need of help as they struggle to stay in their homes or find rentals after eviction. Housing counseling agencies doubt the funds will be restored and fear that they won’t be able to make up the shortfall from alternative sources.

“It’s a huge hole in the budget of the counseling infrastructure,” said Janis Bowdler, a director at the National Council of La Raza, which has dozens of housing counseling affiliates. “We estimate our network of 55 organizations providing these services will shrink down to 20.”

The most immediate impact may be felt by seniors who want to take out reverse mortgages, which allow them to withdraw equity from their homes.

These loans, which are usually backed by HUD’s Federal Housing Administration, have become more attractive to seniors as the economy has soured. But the financing is complex, which is why the FHA has long required seniors to take part in HUD-approved counseling sessions before these loans are approved.

That requirement has not gone away, but now the funds that supported the counseling sessions have dried up, said Peter Bell, president of the National Reverse Mortgage Lenders Association.

Of the $88 million that was cut, $8 million was for reverse mortgage counseling. That money helped to defray counseling costs for seniors. HUD used to cap the permissible fees charged at $125 a session, but recently it allowed the counseling firms to charge higher fees if they could justify the cost, Bell said.

“Some would charge $50, and some charged nothing,” Bell said. “Now the fees will most likely rise above $125. I’ve heard agencies say the fees could double.”

The shame of it is that the seniors need the counseling to determine whether a reverse mortgage would work for them, Bell said. If it doesn’t, they wouldn’t recoup the counseling fees that they paid out of pocket.

HUD’s program certified about 2,700 housing counseling agents and its seal of approval was the gold standard. Many housing counseling firms said that if their ranks shrink, scam artists would fill the void and prey on desperate consumers.

Officials from HUD and NeighborWorks insist that their programs are complementary.

The NeighborWorks initiative, called the National Foreclosure Mitigation Counseling program, received about $65 million in funding, and the program has requested $80 million for fiscal 2012. The program, in place since fiscal 2008, has counseled more than 1 million homeowners since its creation. It focuses solely on foreclosure prevention.

By contrast, the HUD program is more flexible, offering a wider range of counseling services that cater to first-time home buyers and the homeless. But 46 percent of all the program’s counseling sessions were devoted to foreclosure prevention in fiscal 2010 compared with about 16 percent in fiscal 2007, Vicki Bott, a deputy assistant secretary at HUD, told House lawmakers recently.

While lawmakers say that information only proves that the HUD program is duplicative, housing agencies say the numbers show that the funding provided to NeighborWorks is not enough to meet the high demand from troubled borrowers.

“That’s why housing agencies count on the HUD program,” said Evelyn Fortier, vice president and deputy general counsel at the National Foundation for Credit Counseling. “They tap into the HUD funds to meet the foreclosure counseling needs.”

For now, with HUD running behind in distributing its funds, some housing counseling firms said they are using the money from the previous fiscal year to run their operations now. But come Oct. 1, when the next fiscal year begins, they foresee trouble.

“People will pay or the services will disappear,” Bowdler said.