EVEN WHEN faltering homeowners and their banks would both benefit by modifying mortgage terms or arranging a so-called “graceful exit’’ from an unsustainable loan, such negotiations haven’t become standard practice — and the arduous foreclosure process lurches forward, often through bureaucratic momentum alone.
One promising solution is for governments to make mediation automatic, by requiring that borrowers be given a chance to sit down with lenders and neutral third parties to attempt to work out a payment solution that is viable for all involved. Mayor Menino is asking the Legislature to make the process automatic in looming foreclosure cases in Boston. Lawmakers should agree, and go a step further by making mediation automatic throughout the state for homeowners facing foreclosure. Similar laws have proved beneficial in Connecticut, Florida, and New York. Massachusetts should follow suit.
The foreclosure crisis has thrown millions of families into limbo, muddied the balance sheets of mortgage lenders, and threatened the recovery of the broader economy. Foreclosing on a home and maintaining it until it can be auctioned is costly for lenders; they’re often better off when they offer more affordable terms to a delinquent homeowner, or agree to terminate a mortgage amicably, perhaps through a short sale. But the necessary negotiations can be hard to bring about when the company that services the mortgage doesn’t actually own it — or when a mortgage holder has thousands of foreclosure cases on its hands.
That’s why mediation should be automatic. One study found that cities and states with mandatory mediation reported settlement rates approaching 75 percent. In these cases, lenders get an acceptable payment schedule rather than an empty house in a profoundly troubled housing market.
A program of automatic mediation also builds transparency and communication into the foreclosure process, which more often involves reams of paperwork, endless bureaucracy, and a dearth of human interaction.
Mediation is all the more important amid significant evidence that many foreclosures are deeply flawed. In Massachusetts, the Supreme Judicial Court ruled just last week against two attempted foreclosures in Springfield in which the lender lacked the required documentation at the time of the proceedings. The decision could affect thousands of foreclosures in the state. In Florida, an investigation by the state’s attorney general found countless examples of forged signatures, missing paperwork, and other sorts of questionable behavior. By forcing a face-to-face sit-down between borrower and lender, mediation nips many of these potential issues in the bud.
Regardless of whether an individual foreclosure was rightfully filed, it is better in every case for all parties to discuss the situation and consider possible solutions. Lenders are better served if they can receive monthly payments. Homebuyers will feel more confident in their investments if they don’t have to worry that the market will become flooded with foreclosed homes. And families who desperately want to stay in their homes will have a chance to reach a settlement. Foreclosures are messy, complicated, and potentially life-ruining, so they need to be undertaken very carefully — and with a human touch.
