Monday, November 16, 2009

So How's the Foreclosure Mediation Program Doing? And Will California Soon Follow Our Lead?

So how's Nevada doing? Foreclosures are still high, but are off their record highs and thankfully on the decline.

Nevada had 13,842 foreclosure filings, which was a 26 percent decline from September. Filings fell 4.4 percent from October 2008.

The firm reported one filing for every 80 households in October. Nationwide, foreclosure filings fell 3 percent from September, but were up 19 percent compared with October 2008.

In Nevada, notices of default on home payments dropped 10 percent from October 2008 and scheduled foreclosure auctions were down 6 percent. Bank repossession, however, rose 8 percent in October.

RealtyTrac spokesman Daren Bloomquist said a new state mediation program implemented July 1 may have caused the declines in Nevada because it slowed the flow into the foreclosure pipeline. Under the program, homeowners have the option of going through mediation with lenders.

Wait, so what's RealtyTrac talking about? They're talking about AB 149, the new law passed by the Legislature earlier this year that actually requires the banks to go into court-sponsored mediation to work out a home loan modification. And if this mediation doesn't work out due to the bank's refusal to agree in good faith, the distressed homeowner can persue a remedy in state court.

But why should we have faith that this program will work in the long run? Don't the banks always win? Maybe not, according to these famous local lawyers.

Recently, the non-profit National Consumer Law Center released a report saying that none of the foreclosure mediation programs they reviewed (a list which does not include Nevada) are providing significant benefits to homeowners. [...]

Why? Because the existing programs routinely fail to impose significant obligations on mortgage servicers, according to the article.

In contrast, Nevada's Foreclosure Mediation Program gives homeowners facing foreclosure the option to request a mandatory foreclosure mediation session. This means someone from the mortgage company with authority to negotiate must attend the foreclosure mediation session. Additionally, Nevada has now trained a number of professional foreclosure mediators who also sit in on and participate in the foreclosure mediation session.

It would be great if the other states could create laws with similar teeth in them. And it would be even better if Congress or the Treasury could come up with uniform protections and solutions for homeowners. However, the mortgage industry's lobby is strong. And according to the NCLC report:

"It is unfortunate that the [mortgage] industry has so far prevailed in blocking Congressional action on court-ordered loan modifications, the one step that would level the playing field for consumers and ensure the necessary accountability from all parties....With the industry's encouragement, crucial elements of accountability have been omitted from the Treasury Department's Home Affordable Modification Program (HAMP). Now, over six months after its inception, this new federal initiative serves only a small percentage of eligible homeowners."

The important takeaway, for now, is that Nevada homeowners have some unique tools at their disposal.

While the federal home loan modification program is a good start and has provided some relief to distressed homeowners, it unfortunately falls short of providing the kinds of protections and remedies to homeowners that Nevada's program does. That's why the states are now passing stronger foreclosure mediation laws, but so far few, if any, states' programs come close to the strength of Nevada's program.

However, this may soon change.

Nevada Assembly Speaker Barbara Buckley testified today before the [California Assembly Banking & Finance Committee], stating that she believes Californians can benefit from a program similar to the one she sponsored in Nevada. “No matter where we live, it is critical that we do all we can to help reduce the number of foreclosures and help people stay in their homes. Our program in Nevada has shown initial success in stemming foreclosures. While I understand the obstacles California faces as a non-judicial foreclosure state, I look forward to working with the California Legislature to find ways that a similar program could be implemented, said Speaker Buckley.”

Over the next several weeks, Assemblymember [Pedro] Nava [D-Santa Barbara] will analyze the testimony given at the hearings regarding loan mediation programs and work with stakeholders to determine how to best move forward to address the current crisis and lessen the detrimental impact on California families.

“I am honored to have Nevada Assembly Speaker Barbara Buckley at the State Capitol today to testify on her successful foreclosure mediation program. I look forward to working with her as we make progress with California’s own monitored mortgage workout program,” said Nava.

California is now considering AB 1588, introduced by Nava, Assm. Ted Lieu (D-Torrance), and California Assembly Speaker Karen Bass (D-Los Angeles), and strongly supported by LA Mayor Antonio Villaraigosa (D), as a possible solution to its own foreclosure crisis. Nevada's foreclosure rate may still be the worst, but California is now a close second and the crisis there may actually be worsening again.

The banks have proven to be predators in enticing people (if not outright forcing them) into risky home loans that they ultimately couldn't afford. And now with these very people defaulting on their loans, the banks just toss them out of their homes with no chance of resolving the defaulted loans. Even though these very banks benefitted greatly from the TARP bailouts, they still refuse to fulfill their promises and use those funds as originally intended.

This is why Nevada needed AB 149... And why California needs AB 1588. While California's program would work differently by implementing a "Monitored Mortgage Workout Program" operated by the California Housing Finance Authority (CHFA) (as opposed to Nevada's system being operated by the state judiciary), it would otherwise be similar in requiring the banks to undergo mediation if a distressed homeowner requests one. Again, this will be a major help in preventing a number of foreclosures by giving homeowners a real chance to modify the home loan before it defaults.

So thankfully, Nevada's program is making a difference in preventing the foreclosure crisis from worsening even further here. And hopefully soon, California and other states will follow our lead.