From mid 2008 to mid 2009 25 different foreclosure mediation programs have been established in 14 different states. State legislatures, state supreme courts and local courts created these.
The purpose of these mediation programs is to bring a representative from the mortgage company, a person facing foreclosure and a mediator together. These three parties explore whether the foreclosure can be avoided by modifying the person’s mortgage. If it can, then a new monthly payment is negotiated and the mortgage is modified.
The representative from the mortgage company is supposed to have the power to negotiate the reduced payment. When the modification agreed to is sent to the mortgage company, they are to automatically accept it and put in place.
Sounds great, doesn’t it? What have the results of these mediation programs been?
Mediation Programs Have Not Achieved the Results Expected
As of November of 2009 there is no data to confirm that any of the mediation programs have led to a substantial number of affordable and sustainable loan modifications.
- Most have not had the cooperation from the mortgage companies that they expected.
- People facing foreclosure have not participated in the mediation process.
- Many of the programs gave the mortgage company the power to determine whether or not they would modify an individual loan.
- Mortgage companies have reneged on the agreements to modify loans made by their representatives as part of the mediation process.
- Programs have not tracked the outcome of the loan modifications that were agreed to during the negotiations. Those that have tracked the outcomes frequently have done it only under the vaguest of categories. These typically show that the program is doing a good job. The tracking is not specific enough to show whether or not most people have been able to save their homes from foreclosure with modifications.
Any time a foreclosure is finalized, it is done so at a tremendous cost. There are several different losers. The first is the family that owned the home. The second is the investor or investors who put up the money for the loan. The third is the community where the home is. Property values drop. The fourth are ordinary people who pay increased costs for loans and other things.
The concept of mediation programs is great. Again that is to bring together all parties involved in a foreclosure together to see if there is some way the loan can be modified and the people can save their home. If this can be done the loss for the investor or investors won’t be as great.
What can be done to improve the results of mediation programs?
Each mediation program has to be reviewed. The following guidelines should be in place for every mediation program:
- Mortgage Companies must be required to participate in the program. Penalties need to be established for any that does not. A company that does not participate has to pay the penalty.
- Each mortgage company has to give the person facing foreclosure and their representative, it they are represented, copies of certain documents related to the foreclosure. If the company has a proposal for a loan modification, they have to furnish this along with the data showing how they developed the proposal.
- Each mortgage company should negotiate in good faith. Any that does not should have to pay a penalty.
- The representative of the mortgage company must have the power to negotiate a loan modification for the company. Any time a company fails to honor a modification that has been agreed to by their representative, they should be penalized.
- Every person facing foreclosure should be required to participate in the mediation process.
- If participation in a given program is not mandatory, then anyone facing foreclosure should have to the right to request mediation on their case right up to the date on which a foreclosure sale has been scheduled.
- Each mediation program should track the outcome of all cases where mediation has resulted in a loan modification. They should require the mortgage company to report to them on a monthly basis whether or not a person whose loan was modified has continued to make their reduced payment on time. In each case where the person did not make their payment on time and faces foreclosure again, the mediation program should investigate to find out what happened.
Properly structured mediation programs can be the most effective way to modify loans successfully which will enable as many people as possible to save their homes and which will help investors save their investments. Hopefully the state legislatures, state supreme courts and local courts that have set up the existing 25 mediation programs will take a long, hard look at each one and make the changes necessary for them to become as effective as possible.