More than 360 Connecticut homeowners have avoided foreclosure in the past five months thanks to a new mediation program established by the state, but some think it’s still being underutilized.
The program, which was part of comprehensive mortgage relief legislation passed earlier this year, allows borrowers to meet their lender face-to-face to try to reach a settlement on an overdue mortgage.
If the borrower chooses mediation, lenders are required to participate and the process can delay foreclosure by 60 days or more.
Some lawmakers have touted the program as the first of its kind in the country.
About 28 percent of the estimated 5,513 homeowners who are eligible for the program have applied for mediation, and 361 people have reached a settlement that allowed them to keep their home. Another 116 homeowners decided to leave their home but were able to reach an agreement with their lender to pay off the balance of their mortgage. Mediation remains unsettled in 203 cases.
“All of us familiar with the program would like to see more people participate,” said Ann Parent, an attorney for the Connecticut Fair Housing Authority. “We don’t know why more homeowners aren’t requesting mediation, but we feel like more should.”
Parent said she supports the program and agrees that it is serving an important purpose, especially for homeowners who can’t afford a lawyer to guide them through the foreclosure process. At the same time, however, she said it’s unfortunate that less than 30 percent of eligible homeowners are using it.
Making It Mandatory
“There is not enough understanding of the system in general,” Parent said.
In November, Gov. M. Jodi Rell proposed making mediation mandatory for all homeowners who are facing foreclosure, a move that would likely greatly increase participation.
Foreclosures in Connecticut have lagged behind the national average, but the number of filings during the third quarter increased by 18 percent over the same time period last year, according to The Warren Group, a Boston-based real estate analyst.
Statewide there were 7,063 foreclosure cases filed between July 1 and Oct. 31.
A surprising aspect of the mediation program so far has been the willingness of lenders to actively negotiate with borrowers, said Richard Tynan, a court mediator in Hartford.
Tynan said lenders were skeptical of the program at first because of its uniqueness but have made an honest effort to reach an agreeable settlement with borrowers.
“Lenders have come around pretty well,” Tynan said. “They have a mutual role in the process. It hasn’t been difficult working with banks.”
Tynan said the typical lenders at mediation have been larger banks and mortgage providers that were most active in subprime lending, including Wells Fargo, Countrywide and Deutsche Bank to name a few.
“If you think of a big bank they’ve been there,” Tynan said, adding that he rarely sees smaller Connecticut-based banks at the hearings.
Keith Fuller, an Enfield-based attorney who represents five clients currently in mediation, said he is not surprised that lenders have been willing to negotiate because it’s in their interest to do so. He said they don’t want to have nonperforming loans on their balance sheets or end up with a large inventory of foreclosed properties, whose values continue to decline.
“This is an ongoing crisis that isn’t going away anytime soon,” Fuller said. “It’s always good to see people stay in their homes and it benefits banks as well.”
Few Qualify
Aside from the mediation program, the state has appropriated more than $120 million in programs to assist homeowners who are struggling to make payments on their mortgages, but relatively few have qualified for some of them.
For example, by Nov. 10 only three loans were approved for the $64 million Emergency Mortgage Assistance Program, which went into effect in July to assist homeowners who face a short-term hardship.
While the number of people participating in mediation may not seem significant to some, it has been one of the more successful foreclosure prevention programs the state has adopted so far, said Roberta Palmer, who administers the program.
“The fact that 70 percent of people have been able to reach a settlement with their lender demonstrates it’s having a major impact,” Palmer said.
Fuller agrees. “I’ve been really impressed with the favorable results for borrowers so far,” he said. “It may seem like a small number, but anything that is a successful result is better than nothing.”
Even though none of his clients have been able to officially save their home from foreclosure through the program, Fuller says it has been a success because it allows homeowners to slow the foreclosure process.
He said borrowers oftentimes find it difficult to work with lenders to settle an overdue loan but by forcing lenders to participate in negotiations, it opens up better lines of communication.
“There is more decision making authority at the mediation program which already guarantees better results for the borrower,” Fuller said. “It’s much more efficient.”
