I am grateful to Paul Kirgis (in this post) for restarting the discussion on foreclosure mediation—it is useful to keep revisiting what is working and what is not.
The New York Times article he cites is interesting in a number of ways. First, as Paul notes, it confuses the process of mediation with the underlying applicable law. Mediation—voluntary as in our program or mandatory as in Nevada—occurs in the shadow of HAMP and other regulations and financial realities governing the ability of the parties to make loan modifications.
Second, the article highlights some of the issues with mandatory mediation where, it appears, there are a whole bunch of lenders showing up with little interest, or even ability, to modify the mortgages.
And, it appears that this poor behavior on the part of lenders leads mediators to want to suggest sanctions which, apparently, has led to confusion in the Nevada program and raises policy issues regarding the role of a mediator as a neutral. This is an ongoing issue in terms of how we get the right people to the table, with the right documents including all of the necessary financial information, with the right incentives to mediate.
I am not sure that we have the balance right either but I do think that our program has several differences with Nevada that might be worth contemplating over time. We have a voluntary program in which the lenders can choose to decline mediation. At the beginning of our program, we did have quite a few declines, but in the last 9 months, the rate of declines is rather low. We actually think that as the legal culture as adapted to the program in Milwaukee, both the lender community and their attorneys plan for mediation when requested by the homeowner. (Requests for mediation have been at around 18 percent of all cases filed—actually higher than in Nevada last time we checked—and with our lower rate of declines, it may be that our voluntary program is mediating a higher percentage of foreclosure cases than their mandatory program but I don’t have their latest numbers.) Of course, the foreclosure picture in Wisconsin is radically different from the picture in Nevada from a sheer numbers standpoint, and as a judicial foreclosure state with an extremely long redemption period, our challenges are different from Nevada’s. This is one of the reasons our program believes there is no “one size fits all” solution and local law, DR culture and custom all need to be considered in a systems design context.
Another difference between our program and Nevada is that the borrowers, with the help of a mandatory meeting with a housing counselor, are in charge of getting their financials together and we (as the program administrators) are in charge of circulating all information in advance of a mediation. No mediations occur, in our program, without the lender having all the information it needs in advance.
As for two general concerns the New York Times raise, they are both good points. First, we too do not yet know whether trial modifications turn into permanent modifications. We are moving to study these, and definitely to track what happens, but most foreclosure mediation programs around the country do not have plans in the works to find out what happens past the mediation session. I expect to be blogging about this more as soon as we have data.
Second, the article notes that some lawyers in Nevada are concerned that banks have more power than borrowers in the mediation. And, yes, that is absolutely true. Mediation cannot fix the fact that, unless the borrower has some sort of legal defense like the bank was engaged in predatory lending, the borrower clearly has less power. Mediation is not a panacea nor can it change the facts on the ground. Most foreclosures, at least the ones we are seeing, have little to do with banks’ bad behavior and are caused by unemployment, illness, divorce, or any combination of those. What mediation does provide—and where I think our program and other programs probably excel—is ensuring that the lender will sit down with the borrower, that full information will be shared, that the borrower will understand the financial opportunities and risks of any loan modification, and that the borrower will feel heard and will have a say in the outcome of the mediation. At this point, I think that is the best we can do.
Cross posted at Indisputably.