Philadelphia Mandatory Mediation Program Keeps 60 Percent Of Borrowers Out Of Foreclosure

ap0811250135231Reuters has some new data today on a foreclosure prevention initiative that Philadelphia has implemented. Under the city’s mandatory mediation program, before a homeowner can be foreclosed upon, the lender and borrower must meet with judges, housing advocates and attorneys “in the hope that a resolution can be found under which owners will resume payments they can afford and lenders will no longer need to dispose of distressed property.”

The lender is in no way forced to find a workable solution with the borrower, but the simple act of putting all the parties together in a room has produced some encouraging results:

A program to avert residential mortgage foreclosures has saved almost 60 percent of its participants from losing their homes in a sheriff’s sale, officials said on Tuesday. Philadelphia’s Mortgage Foreclosure Diversion Pilot Program…resulted in 2,776 properties permanently or temporarily saved from sale between its inception in June 2008 and May 31 this year out of 4,690 that were referred to the program.

A statewide program in Connecticut has produced similar numbers, with 57 percent of borrowers able to stay in their homes. But despite the effectiveness of mediation meetings, as of the end of last year, about 80 percent of homeowners at risk of losing their homes had not engaged in any efforts to make a deal with their lender.

Sen. Arlen Specter (D-PA) is reportedly putting together legislation to replicate the Philadelphia program at the national level. Conveniently, CAP’s Andrew Jakabovics and Alon Cohen have some suggestions for the sort of steps that the federal government can take to promote such an effort:

Congress should fund state and local mandatory mediation programs just as it provides neighborhood stabilization funds to alleviate the housing crisis.

— The Department of Housing and Urban Development should issue guidance that explicitly permits community development block grants to be used to fund mandatory mediation programs.

— The government should require mediation for all federally insured home mortgages.

Bloomberg reported yesterday that delinquencies on prime mortgages more than doubled in the first quarter of 2009, compared to a year earlier, “as U.S. efforts to help homeowners failed to keep pace with job losses.” The foreclosure problem is simply not going to abate any time soon, so any reasonable steps that can keep borrowers in their homes — including mandatory mediation — can, and should, be taken.