Report Faults Pre-foreclosure Mediation Plans

A study by the National Consumer Law Center has found that programs in 14 states requiring either pre-foreclosure mediation or conferences with troubled homeowners have done little to ease the foreclosure crisis, largely because the programs impose no significant obligation on servicers. If no requirements are placed upon servicers, the report said, it is unlikely that mediation that will lead to fewer foreclosures. Many of the 25 foreclosure mediation programs reviewed for the study lack mandatory rules and fail to impose sanctions for noncompliance with what minimal rules exist, the study said. It also faulted the programs because they do not require servicers to provide information substantiating a right to foreclose and do not mandate analyses of loan modification alternatives. And it said many programs set such "unreasonable procedural barriers" that large numbers of homeowners were restricted from participating. "Under most of the existing foreclosure mediation programs, servicers have all the discretion and homeowners have little or no power," said the study's author, NCLC staff attorney Geoffrey Walsh. "If the programs continue to demand little or no accountability from servicers, they will likely go the way of federal efforts to control foreclosures that have failed as a result of relying on voluntary compliance by the lending industry." The National Consumer Law Center is a nonprofit organization that seeks marketplace justice on behalf of low-income and vulnerable Americans. Among a litany of recommendations: A requirement that servicers give borrowers a document showing its affordable loan modification calculation and net present value calculation; produce specified documents, such as a pooling and servicing agreement, loan origination documents, an appraisal, and loan payment history; establish proof of their standing as the real party in interest, and document that they have considered alternatives to foreclosure.