Fannie Mae and Freddie Mac alone have begun over 850,000 foreclosures this year. Automatic foreclosure mediation programs could help hundreds of thousands of these homeowners who through no fault of their own face eviction from their homes. This, in turn, would help communities across our nation cope with a continuing foreclosure crisis. American taxpayers gain, too, because the federal government today insures, guarantees, or holds outright around three of every five family mortgages in our country. In the past year, new mortgage lending depended even more on the federal government, with 90 percent of loans bearing government guarantee or insurance. Thus, nobody stands to benefit more than the American taxpayer from the greater value and shorter timelines that automatic foreclosure mediation ensures.
So what do we stand to save? The estimates below indicate that for every mortgage modified in mediation, the mortgage servicer cuts its losses by 60 percent. (As in our previous papers, the term mortgage service companies, or “servicers,” will be used here to refer to the party foreclosing on a property because most loans are handled by a third-party servicer acting on behalf of lenders or investors.) Applying that estimate conservatively to the two mortgage finance giants Fannie Mae and Freddie Mac, both of which are operating under government conservatorship, it could represent a savings of over $6 billion, and more importantly, over 177,000 homeowners that would keep their homes. The spillover effect on communities of all these homes would mean stronger local property tax bases and reduced strains on municipal services—gains that could account to billions of dollars more in savings.
"Talking It Up," a new paper by Alon Cohen, demonstrates how the federal government in all three branches, executive, legislative, and judicial, can support automatic foreclosure mediation across our country. Our proposals would enable this to happen directly by implementing it through the federal government’s main mortgage entities—Fannie and Freddie, the Federal Housing Administration, the Veterans Affairs Administration, and the Department of Agriculture’s Rural Housing Services programs and indirectly by supporting state programs designed to foster automatic mortgage mediation.
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