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Foreclosure Mediation Can Save Millions of Homes, Says New Report

February 7, 2012 2:26 am

According to a new report from the National Consumer Law Center (NCLC), a proven solution is already in place to head off the mounting foreclosure problem in the United States. The report, “Rebuilding America: How States Can Save Millions of Homes through Foreclosure Mediation,” documents how states with strong programs are preventing foreclosures while saving money for investors and taxpayers.

The National Consumer Law Center® (NCLC®) is a non-profit organization specializing in consumer issues on behalf of low-income and other vulnerable people. This nationwide report reviews existing programs in 19 states and makes recommendations for best practices for all states to adopt, using foreclosure mediation data from the last three years to draw its conclusions. The report includes examples of programs that are more successful (Connecticut, Nevada, and New York) and those that are less so, and provides a history of documented servicer problems and the Home Affordable Modification Program (HAMP).

Highlights and key recommendations from the report include:
  • Foreclosure mediation programs and conferences provide substantial community benefits at little or no cost. Mediation fees average from none to less than $1,000, typically paid by the homeowner and/or the mortgage lender. In comparison, investors lost an average $145,000 per home foreclosure in 2008, and foreclosures just in California have resulted in nearly $500 billion in aggregate direct and indirect costs.
  • Effective mediation programs do not prolong foreclosures. Most mediation programs work within the time frames for existing state laws. In Philadelphia, for example, the typical foreclosure case spent 53 days in a foreclosure conference while the average time frame to complete an uncontested foreclosure was 10 months.
  • Foreclosure mediation programs connect borrowers with housing counselors. Borrowers who receive housing counseling are much more likely to avoid foreclosure and obtain affordable as well as sustainable loan modifications. According to a recent study, 63 percent of borrowers who obtained modifications with counseling sustained the modifications, while only 8 percent of borrowers who obtained modifications without counseling sustained them.
  • Not all foreclosure mediation programs are equal; all states should adopt foreclosure mediation programs with enforceable standards and robust outreach as permanent features of state foreclosure laws as quickly as possible.
  • Strong foreclosure mediation programs can work hand-in-hand with other tools to rebuild the nation's broken mortgage market and should be used to maximize HAMP modifications. As documented in previous NCLC reports, servicers can make sustainable loan modifications yet many choose not to do so. The modified loans' default rate over one year dropped from 56.2 percent in 2008 to 25.7 percent in 2010. HAMP loan modifications were the most sustainable of all with a 19.4 percent (2010) and 17.3 percent (2011) redefault rate after one year.
  • Policymakers can use mediation programs to help preserve minority homeownership; gains made over the last decade are vanishing. Many minority families were initially targeted for unaffordable subprime loans, and are denied loan modifications more often and steered into less affordable non-HAMP loan modifications more frequently than non-minority homeowners. Mediation programs provide needed oversight over practices that continue to disproportionately impact minorities.

Published with permission from RISMedia.

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