Is Mortgage Mediation the Answer?
An article today in USA Today suggests that more troubled borrowers are turning to mediationin an attempt to avoid foreclosure.
Mediation is when the borrower and the lender sit down with a court-ordered mediator, a third party, to look at options.
"Modification programs are fairly limited, and difficult to execute," says mortgage consultant Howard Glaser. "Mediation is a "fail-safe", a final opportunity to cure any deficiencies in the process."
Obviously, given the sheer number of troubled borrowers (approximately 6 million currently delinquent nationwide) there are ample opportunities for mistakes to be made. The banks have been hiring armies of loan modification agents and training them as quickly as possible, but every case is unique, and the modification programs extremely complicated and difficult to execute. The agents are often low-paid and unsophisticated, and borrowers complain they are lost in a system of endless phone trees; mediation attempts to solve that by personalizing the process.
"In essence it allows the borrower and his/her attorney to confront a representative of the lender and attempt to start a dialogue. In a loan modification situation the lender can say no without explaining why. In front of a court appointed mediator that kind of behavior is pretty difficult, and lenders at least have to explain why they are saying no," explains Glen Corso, Managing Director, Community Mortgage Banking Project.
In December of last year, the Florida Supreme Court adopted a statewide managed media program. Given that there are close to half a million foreclosure cases pending in the state, it is slow in moving, barely six months later. There are just so many mediators to go around. 14 other states have mediation programs, and potentially more are in the works. Insiders, though, tell me the mortgage industry is not a fan of mediation. I don't think I need to get into the reasons why.
So in Florida, you get your face to face with your lender, but does it really change the outcome?
"Since mediation is just that, the lender and the borrower try and work things out in front of a court appointed mediator, it is tough to see how it would lead to a higher percentage of modifications," says Corso. The result may in fact depend on how pushy the mediator is. But the facts of the case remain the same, and if the lender deems it less damaging financially to the loan's owner/investor to foreclose than to modify, they certainly have that right and often that requirement.
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