Is Mediation the Answer?

Is Mediation the Answer?
By Jennifer Harmon
Foreclosures are costly to the borrower, servicers and the investors who take losses on the sale of those properties. It’s also expensive to the taxpayers in the communities where these foreclosures are taking place. Foreclosures drive down property value. They often result in an increased level of blight and crime, and property tax revenue decreases because of the decline in value.
The Obama administration is doing everything in its power to reduce foreclosures through the Home Affordable Modification Program. While many are focusing on the refi and modification components of the plan, the Center for American Progress says that mandatory mediation should be incorporated into that process to make sure that the people who are eligible for these programs will in fact get the assistance that they need.
The report, “It’s Time We Talked: Mandatory Mediation in the Foreclosure Process,” outlines how foreclosures can be reduced by as much as 75% if the federal government takes a more direct role in providing opportunities for mediation.
Philadelphia and Connecticut are two places that have had mediation programs in place for about a year now. About three-quarters of all cases that go through mediation are able to avoid foreclosure, according to Andrew Jakabovics, the organization’s associate director for housing and economics. “That really shows that there is an alternative to foreclosure that is beneficial to everybody,” he said. “I think it can be wrapped up nicely into the ongoing administration’s efforts.”
Mediation is simply a voluntary negotiation between two parties in the presence of a neutral third party. The important thing about it is that it’s voluntary negotiation. It’s not bankruptcy and it’s not a cramdown.
Mandatory mediation begins when a foreclosure notice goes out to both parties at the beginning of the process. The servicer and homeowner are required to appear at a particular time on a particular date for a mediation session.If a servicer is participating in a mediation session and feels like it is not beneficial and doesn’t think he will make more from settling than in foreclosure, the servicer never has to settle.
One of the potential pitfalls in the program is that borrowers who are eligible for HAMP are not necessarily getting the modifications under the program either because the servicers are applying the wrong numbers or they are actively steering borrowers to non-HAMP-compliant loans, said Mr. Jakabovics.
“One of the things mediation would do is simply say if a borrower in the process of getting foreclosed on goes to a mediation session, the servicer is there and says, ‘Look, you didn’t qualify.’ This gives the borrower basically an appeals process that is currently missing from HAMP so the borrower can say, ‘Here are my numbers. What numbers were you looking at?’ The servicer might go back and look at them and see if they can actually reach a deal.”
Given that the compliance checks on HAMP are several months out, the detailed checks are not likely to start until October. There are problems these compliance checks might not catch. “Certainly, come October if something gets flagged and is eligible for HAMP, but the borrower was not offered the modification, it does the borrower very little good if they are already out of their home,” said Mr. Jakabovics.
Getting borrowers and servicers together in the same room appears to have tremendous value. Mediation might be an ideal way to make sure the servicer is getting it right. They are not going to be making any more deals that are less valuable to them than what they would have gotten in foreclosure.

C.A.R. launches mortgage protection plan for first-time home buyers

The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today launched the C.A.R. Housing Affordability Fund Mortgage Protection Program (C.A.R.H.A.F. MPP), for first-time home buyers.Through the Housing Affordability Fund Mortgage Protection Program, first-time home buyers who lose their jobs due to layoffs may be eligible to receive $1,500 per month, for six months, to help make their mortgage payments. A qualified co-buyer also can participate in the program, and receive a monthly benefit of $750 per month for up to six months. Program benefits also include coverage for accidental disability and a $10,000 death benefit. C.A.R.’s Housing Affordability Fund is dedicating $1 million toward its Mortgage Protection Program, and estimates that as many as 3,000 families will benefit from the program this year. To qualify for the Mortgage Protection Program, applicants must:· Be a first-time home buyer – someone who has not owned a home in three or more years· Open escrow April 2, 2009, or later, and close on or before Dec. 31, 2009· Use a California REALTOR® in the transaction· Purchase the property in California· Be a W-2 employee (cannot be self-employed) To apply for the program, home buyers must request an application for the H.A.F. Mortgage Protection Program from their REALTOR®. This week’s Mortgage Update contains information about mortgage rates; mortgage refinancing and how to get the best refinancing deal.Mortgage rates drop to record lowRates on 30-year, fixed-rate mortgages averaged 4.85 percent for the week ending March 26, following an announcement by the Federal Reserve that it is launching a new effort to assist the U.S. housing market. The rate marked a record low in the history of the Freddie Mac survey. The previous low was 4.96 percent set during the week of Jan. 15.Get the best refinancing dealThe recent declines in interest rates on 30-year, fixed-rate mortgages have resulted in many homeowners seeking to refinance. Due to the large number of requests to refinance, some homeowners are experiencing difficulty in trying to reach their lender. According to Fannie Mae’s chief economist, it may take as long as three months for the mortgage industry to start working at full capacity. To ensure they receive the best refinancing deal possible, consumers should be patient and follow a few tips from industry experts: First, consumers should recognize there is opportunity for significant savings by refinancing. Rates currently are hovering around 4.6 percent, but historically hover around 8 percent. Second, homeowners should be aware that Fannie Mae and Freddie Mac have increased their fees, so borrowers could be paying extra fees of 1 percent or more of the total loan amount. To qualify for the best rates, most borrowers must have at least 20 percent equity in their homes and FICO scores of 720 or higher.