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Study Finds Foreclosure Mediation Programs Fail Because They Lack Lender Accountability

September 28, 2009

Our Redlands loan modification attorneys were very interested to see a new study on a popular tool for homeowners seeking a loan modification: foreclosure mediation programs. According to a Sept. 23 Reuters article on the report, fourteen states (up from ten in January) have established mediation programs to help homeowners in court for a foreclosure work out alternatives with their lenders. In most cases, the expected outcome is a change to the terms of the loan or another new arrangement -- in essence, a loan modification. Unfortunately, mediations have not been working, according to the report by the National Consumer Law Center (PDF), a nonprofit consumer-rights organization.

The NCLC reviewed 25 foreclosure mediation programs in all 14 states, speaking to court officials, attorneys and others who work with the programs. It found no data suggesting that these programs have produced a significant number of loan modifications that will be sustainable for the long term. Perhaps more importantly, the center criticized foreclosure mediation programs as toothless, saying they "routinely fail to impose significant obligations on mortgage servicers." For example, the servicers are not required to prove they have the right to foreclose in the first place, or analyze all of the loan modification options available. With few rules for servicers to follow and poor enforcement of the rules that do exist, the report said, servicers have too much control over the outcome, allowing them to block substantial modifications.

The report recommended that states fix their systems by moving away from voluntary compliance and imposing mandatory rules, including a requirement for certification that the lender has made good-faith efforts to modify a loan before foreclosure can proceed. As Anaheim loan modification lawyers, we strongly agree. As the report notes, we have months of evidence to show that loan servicers are not negotiating loan modifications in good faith. Over and over, they have failed to effectively communicate with borrowers, illegally denied loan modifications and offered modifications that wouldn't help borrowers stay current. Under those circumstances, we agree that the time for relying on voluntary compliance is over. Without the "stick" of regulation -- and perhaps, as the study recommends, mortgage cramdowns in bankruptcy -- we do not expect to see improvements.

At Howard Law LLP, we work every day with homeowners trying to stay out of foreclosure by changing their loans to account for their changed economic circumstances. We have a strong record of success convincing loan servicers and mortgage lenders to consider our clients' cases -- success we attribute to the fact that we are Murrieta loan modification attorneys. Lenders do not like to be sued -- and they know that when attorneys call, a lawsuit may soon follow. In fact, we start every case by reviewing the record for signs of predatory lending when the loan was originated, which could invalidate all of the debt and its obligations. However, winning a lawsuit is only incidental to our real goal in loan workout cases -- which is to get our clients a loan modification that lowers their monthly payments to a fair, realistic amount.

If you're racing to get your mortgage loan changed before you go into default or foreclosure and you're not getting anywhere with your servicer, you should call Howard Law for help. To learn more at a free, confidential consultation, please contact us online or call 1-800-872-5925 today.