Wednesday, December 9, 2009
MEDIATE FORECLOSURE PROCESS
Confusion and frustration were etched across the face of the man as he awaited his appearance before a Kern County Superior Court judge. In one hand he held letters from his bank documenting ongoing negotiations to restructure his home loan. In the other hand, he held papers documenting the bank's efforts to evict his family.
How could the same bank seem to be working with him and against him at the same time? Simple -- refinancing and foreclosing, followed by eviction, were being handled by two different units of the same bank.
By the time the man ended up in court, there was little left to discuss. The judge confirmed that the bank could take possession of the Bakersfield house the man had built himself, for his own family.
The Recorder's Office reports that there were 6,530 foreclosures this year in Kern County as of October. Some cash-strapped homeowners simply move out. But many are being hauled before local judges as part of an eviction process.
As the nation, state and county struggle with the worst recession since the Great Depression and the jobless rate climbs, economists predict more Americans will be unable to make their mortgage payments. Foreclosures, evictions and blighted neighborhoods will result.
The Mortgage Bankers Association reports 14 percent of homeowners with mortgages were either behind on payments or in foreclosure at the end of September. The Congressional Oversight Panel, which monitors the Treasury Department's bailout program, concludes foreclosures now threaten families who bought within their means to pay, and who took out conventional, fixed-rate loans, with down payments of 10 percent to 20 percent.
The Obama administration's Making Home Affordable program was supposed to bring relief by giving lenders incentives to work with borrowers to "modify" their mortgages, lower payments and stem foreclosures.
This $75 billion foreclosure-prevention plan is not working as expected. While more than 650,000 borrowers have been given "trial mortgage modifications" under the plan, relatively few have received permanent modifications. To receive a permanent modification, borrowers must make three payments during the trial period and provide proof of hardship.
Borrowers complain they have been denied permanent modifications even after making trial payments and producing the necessary paperwork. The prolonged, unsuccessful process has put some homeowners into deeper financial holes.
Acknowledging the program's disappointing results, Treasury officials recently increased pressure on lenders to help troubled borrowers. Instead of paying lenders $1,000 up front just to begin the loan modification process, lenders now will be given the cash incentive only if the modifications are finalized. Treasury officials also will identify lenders that balk at permanently modifying loans.
California Assemblyman Pedro Nava and Assembly Speaker Karen Bass are asking the Legislature to take an additional step. They want California to join more than a dozen other states that require borrowers and lenders to enter into mediation before property is foreclosed.
During a recent hearing on California's foreclosure crisis, Nevada Assembly speaker Barbara Buckley testified that the No. 1 complaint in her state from homeowners is their inability to reach someone at their bank to talk to. Since Nevada implemented a mediation program in July, 3,400 homeowners have requested mediation.
The proposal to begin a mediation program in California, AB 1588, will be considered when the Legislature reconvenes in January. Who operates the program, who conducts the mediations and who pays for the program are questions that need to be resolved.
But with California having the third-highest foreclosure rate in the nation, clearly more must be done to bring lenders and borrowers together, to keep more people in their homes, and to keep the foreclosure crisis from devastating communities.
"Voluntary approaches that rely on the beneficent decisions of lenders are no longer acceptable," Nava wrote in a recent opinion article, explaining the need for mediation. "All of the programs that exist today fail to create an atmosphere of accountability, trust and transparency in the loan modification process."
This article by John Hardisty (Jack) first appeared in The Bakersfield Californian's Opinion Section on Dec. 9, 2009.