Maryland housing officials told a House of Delegates panel yesterday that despite the state’s 33,000 active foreclosures they had only completed 317 mediations—just shy of one percent. The lackluster performance prompted panel members to ask whether the program justified its overhead. The short answer is, “No, not if Maryland requires homeowners to opt-in.”
There is nothing wrong with Maryland’s foreclosure mediation program. For homeowners that participate, things look pretty good—one third received a loan modification or otherwise reached a settlement. The figure is lower than success rates in other jurisdictions, but all programs so far have seen settlement rates rise as they matured.
The problem is the 99 percent of homeowners facing foreclosures that don’t participate. There are many reasons for why homeowners don’t opt-in for mediation. They range from the practical (homeowners in foreclosures receive a deluge of offers for assistance, many of them spurious, making it hard to identify a legitimate offer when they see it), to the esoteric (regardless of the program, be it organ donation or mediation) when people are asked to opt-in, participation maxes out around 20 percent, and where they are asked to opt-out, the inverse is true with about 20 percent opting-out.)
This is why the Center for American Progress recommends automatic (opt-out) foreclosure mediation in its “Walk the Talk” and other reports on foreclosure mediation practices.
The fix for Maryland’s program is simple: move from an opt-in model to automatic foreclosure mediation. Right now, when lenders or servicers send out a Notice of Intent to Foreclose, they include a form the homeowner can use to request mediation. In an automatic program, lenders and servicers would notify the mediation program administrator that they are sending a Notice of Intent to Foreclose. The program administrator would schedule a mediation session and send both parties—the lender/servicer and the homeowner—a notice of the time and date of the first mediation session automatically. Homeowners would then have the opportunity to opt out.
This is the system that the longest-running foreclosure mediation programs in the country, those in Connecticut and Philadelphia, have come to use. They see participation rates around 75 percent.
More tellingly perhaps, Florida (with one of the highest foreclosure rates in the country) adopted automatic foreclosure mediation at the same time as Maryland adopted its opt-in program. Florida’s program is seeing participation over 40 percent, or 40 times that of Maryland, and it is still ramping up. Thus, even an underperforming automatic foreclosure mediation program would more than merely justify Maryland’s overhead expenses, it would also help thousands of homeowners reach a settlement that may help them keep their homes while netting greater returns for their lender and help reduce the economic impact of the housing crisis on their communities.
Alon Cohen is a consultant on housing issues for the Center for American Progress.