Vetoed foreclosure mediation bill resurfaces

  • Article by: KARA MCGUIRE , Star Tribune
  • Updated: January 6, 2010 - 9:27 PM

The Homeowner-Lender Mediation Act will be reintroduced at the Legislature. But would it do any good?

With the foreclosure crisis overstaying its welcome in neighborhoods across Minnesota, advocates are trying again to get a foreclosure mediation bill on the books.

Minnesota Attorney General Lori Swanson, flanked by Rep. Debra Hilstrom, DFL-Brooklyn Center, and Sen. Linda Scheid, DFL-Brooklyn Park, announced Wednesday that they plan to reintroduce the Homeowner-Lender Mediation Act -- the same bill that Gov. Tim Pawlenty, a Republican, vetoed last year.

The bill is being revived at a time when the housing market has shown signs of improvement but still faces significant challenges -- from high unemployment to adjustable-rate mortgage resets to homeowners walking away from debts that exceed the value of their homes.

As of Nov. 30, there were 35,091 foreclosures in Minnesota in 2009, according to RealtyTrac. Homeowners lost $7.8 billion in value in the Twin Cities metro area alone last year, reported real estate information provider Zillow.com; 15.5 percent of Minnesotans with a mortgage owe more than their home is worth.

"Having vacant houses, where no one is shoveling in the winter, no one is taking care of the property, only brings down the property values of everyone," Hilstrom said.

Swanson's office decided to step in after receiving numerous complaints from borrowers who have sought loan modifications only to have their paperwork lost repeatedly, their messages never returned and their questions go unanswered. Swanson said the bill would help to "cut through the red tape and excuses and deliver real help to real people" by requiring lenders to meet with willing borrowers before starting foreclosure proceedings.

However, a September report from the National Consumer Law Center found no data confirming that such mediation programs in 14 other states have led to a substantial number of modifications. The study found that the programs give mortgage servicing firms the upper hand, with few sanctions imposed for violations.

"If the programs continue to demand little or no accountability from servicers, they will likely go the way of other efforts to control foreclosures that relied on voluntary compliance by the lending industry," wrote the report's author, staff attorney Geoffry Walsh.

The mediation requirement in the Minnesota bill would be non-binding, meaning that reaching a solution isn't required and banks could still foreclose. The mediation program is modeled on the success of the Farmer-Lender Mediation Act enacted during the 1980s farm crisis.

Noah Wilcox says it's wrong to compare homeowners and farmers.

"Farmers have multiple assets, multiple sources of income. With a homeowner, you generally have an asset -- the house -- and one or two W-2s. There isn't a lot to mediate," said Wilcox, president and CEO of Grand Rapids State Bank, who testified against the bill last year and still opposes it. He said community bankers like himself will be a lot less likely to make mortgages to anyone but the very best customers if mediation is required.

"If I'm going to have to put these time bombs in my file drawer, I'm going to rethink what my underwriting looks like ... so that the likelihood of ever having to mediate that loan is as close to zero as I can get it," Wilcox said.

The lawmakers, saying that a mediation law would have been a great help as foreclosures skyrocketed in recent years, plan to introduce the bill in the House on Thursday. Question is, will Pawlenty sign it?

In his veto statement from 2009, Pawlenty said that while he is "supportive of a mediation option for certain foreclosure cases," he was concerned about who appoints the mediator, how mediation is paid for, and whether mediation can take place over the phone.

"I really believe we can work out some of those issues," said Scheid, who has already met with the governor's office about this bill.

For Bridget and Tom Clawson of Princeton, mediation might have saved hours of phone calls and more than a year of wondering. The couple, who have six kids, got behind on their mortgage last fall after Tom's work repairing chimneys "fizzled," he said. Income from his job at Cabela's and their housecleaning business fell short.

They've sent in the same paperwork numerous times and have spoken about a loan modification with several representatives from Ocwen Financial Corp., the company that handles their mortgage. They've stopped foreclosure proceedings on their home four times as they wait for an answer. But while they wait to see if their loan modification will go through, the fees accrue. "You've got the paperwork [fees], you've got the attorneys' fees. Every 85 days they have to come by and do a house evaluation again," said Tom Clawson. "The fees that they charge are ungodly."

Clawson wonders if mortgage servicers are stalling to collect lucrative fees. "Follow the money," he said.

Kara McGuire • 612-673-7293

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