April 29, 2010

Will the O'Malley Foreclosure Mediation Bill Solve the Foreclosure Crisis?

Governor Martin O'Malley has been busy lately . . . and he should be.  He's the governor, for goodness sake!  Recently, he proposed a foreclosure mediation bill in an effort to combat the foreclosure crisis in Maryland. Among other things, the bill would require lenders to: (1) pursue foreclosure alternatives and file an affidavit so stating before filing a foreclosure action; (2) provide homeowners with all the necessary information and paperwork about: foreclosure prevention programs and how to contest a foreclosure action; and (3) mediate with homeowners who believe they are wrongfully being denied a "loan modification or other loss mitigation options."

Sounds like a cool deal, right? Hmm . . . not so fast. Some folks like it, some folks don't.  Here's what I mean. 

The Yeahs!

• Homeowners
• The state of Maryland
• Consumer advocates
• Banking industry (including the Maryland Bankers Association)

They are in favor of the bill because it would help people preserve the American dream of homeownership.

The Nays!

Maryland court system opposes it because it: (1) likely would create an avalanche of dispute resolution conferences that have mandatory mediation; (2) fails to specify exact dispute resolution efforts that must occur before filing a court action; (3) will be costly. (Estimates indicate it could cost more than $800,000 per year. Costs include hiring and training mediators. But the bill requires lenders and mortgage servicers to pay $100 for each foreclosure action filed. This would generate approximately $1.6 million or more per year, which would defray costs to the court); (4) is "inherently unfair" because it requires borrowers to show up in person for mediation, but lenders can attend via teleconference, which court officials believe hardly ever leads to a satisfactory outcome.

Some lenders and mortgage servicers are opposed because they say all the jumping through hoops will drive lenders out of state. And they believe the requirements would only delay the inevitable by enabling delinquent homeowners to keep homes they simply cannot afford. (But O'Malley representatives have said the bill would apply only to predatory lenders). Further, they want to be able to file a foreclosure action before seeking alternatives so if things don't work out the clock will keep ticking.

My Two Cents!
I'm all for the American dream. When people come to the settlement table and leave with the keys, they're happy. So if homeowners are eligible for foreclosure-prevention programs that will allow them to stay in their homes, then they should be allowed and encouraged to pursue those options.

Although the bill may need some amendments (so courts and lenders are not unduly burdened), it is probably a step in the right direction. Because when houses sit empty, it costs everyone: homeowners, lenders, realtors, title companies, and the community at large.

As to whether the foreclosure mediation bill will solve the foreclosure crisis, the answer is, "probably not." Loan modifications and/or short sales won't work for everyone. But, if the bill passes, it likely will help those who are eligible. And that's a good thing.

Until next time.

Be well.

Posted by: shana@lakeviewtitle.com