Lenders may lack incentive
RENO -- A possible wrinkle in the state's plan to mediate home foreclosures is that mortgage lending companies often have foreclosure insurance, creating a disincentive for them to work with homeowners.
Lending companies have foreclosure insurance on about 70 percent of homes with loans, Randy Wilburn, a Boston real estate executive, told lawyers, former judges and mediators on Wednesday.
"Of course, it is a disincentive," Wilburn said about the insurance.
He and Carlos Alarcon, the head of a San Francisco mediation consulting company, gave eight hours of training Wednesday to 35 people who will serve as mediators in the state's new Foreclosure Mediation Program. Included in the group were former Supreme Court Justice Deborah Agosti and former District Judge Leonard Gang.
Another 70 potential mediators will undergo the same training today and Friday in Las Vegas.
Alarcon said foreclosure insurance has not hindered the effectiveness of similar loan modification programs in effect in 10 other states.
In New Jersey, he said, 78 percent of the mediation hearings have ended with decisions other than foreclosure.
"I overwhelmingly believe this will help people in Nevada," he said.
Wilburn said if mortgage lending companies too often try to cover losses by requesting foreclosure insurance payments, their insurance companies could increase their premiums dramatically.
Under a state law that went into effect July 1, home buyers in Nevada can apply for a mandatory mediation hearing in which they work with their lenders to find more favorable arrangements that would allow them to remain in their homes. The program is overseen by the Administrative Office of the Courts, located in the Supreme Court building in Carson City.
In sponsoring the foreclosure bill last winter, Assembly Speaker Barbara Buckley, D-Las Vegas, predicted the program would save about 17,700 homes from foreclosure.
In 2008, lenders foreclosed on 77,000 homes in the state. Foreclosures in Nevada this year have averaged 7,600 a month.
Buckley said the program would help those with the ability to pay the monthly cost of a conventional mortgage, not those who have lost their jobs and cannot make any payments.
The law does not require the lender to agree to any loan modifications.
On Wednesday, Buckley acknowledged foreclosure insurance might be a deterrent to loan modifications.
But she said the Obama administration also is encouraging loan modifications, and lenders might end up with a mass of homes they cannot sell for anything near the mortgage price if they do not work with existing home buyers.
"Nevada is ground zero for the foreclosure crisis that is wrecking our economy," Buckley said. "Loan modifications make sense for many homeowners, but it is complicated by (foreclosure) insurance."
Foreclosure Mediation Program Manager Verise Campbell could issue a certificate that a lender might not proceed on the foreclosure if a mediator determines they did not act in "good faith" to reach an agreement with the buyer.
That would force the lender to go to court and secure an order to overturn that decision and allow the foreclosure. That step could take considerable time.
"I can honestly say I haven't received any resistance to the program by the mortgage industry," Campbell said. "There is a perception about them that is unfair. They are inundated with people going into default. Bringing the parties to the table will humanize the process. They have to show up."
Campbell said she understands that many homeowners have been unable to reach people themselves who can modify their loans.
Banks, including Bank of America and U.S. Bank, didn't respond to requests for comment before press time.
A Wells Fargo spokeswoman pointed to numbers that indicate the company has worked with homeowners nationally to modify loans and avert foreclosure.
In the first half of 2009, Wells Fargo refinanced 750,000 customers' mortgages nationwide using the federal government's Home Affordable Refinance Program. Wells Fargo also provided more than 200,000 trial and completed modifications through federal and proprietary initiatives.
Campbell said the mediation might not lead to new loan arrangements, but to some lending companies agreeing to take the home without filing a foreclosure, a step that could preserve the buyers' credit rating.
Some companies might agree to allow the buyer to pay rent, or others might give buyers several months before having to vacate the residence.
So far, just 10 people have paid the required fees and been scheduled for mediation hearings, Campbell said. Hundreds of others, however, have telephoned her with questions about the applications for the program.
The first hearings will be conducted within two weeks.
Once the program becomes better known, Campbell expects that more than 1,000 mediation hearings will be conducted each month.
Review-Journal reporter Jennifer Robison contributed to this story. Contact reporter Ed Vogel at evogel@reviewjournal.com or 775-687-3901.
FORECLOSURE MEDIATION PROGRAM
HOW IT WORKS:
Anyone receiving a foreclosure notice on an owner-occupied residence as of July 1 can request a mediation hearing. However, the program is designed to help only those who have the financial ability to make reasonable monthly mortgage payments, and not those who have lost jobs or experienced steep cuts in income.
The mortgage lending company must send applications to a home buyer regarding the mediation program when it sends out a foreclosure notice.
Both the lender and the homeowner each pay $200 to cover costs of mediation hearings, which last as long as four hours.
The lender must send someone to the hearings who has the ability to modify the existing loan. This person must produce current appraisals of the value of the property and estimate what the home would sell for in today's market.
The home buyer must prepare a current financial statement and fill out a worksheet that shows how much they can afford on a mortgage.
Both parties must prepare a nonbinding proposal for resolving the issue without a foreclosure.
Failure to act in good faith in seeking an agreement, or refusing to attend the hearing, or attending without all required documents can result in the mediator deciding to allow the foreclosure to proceed or to halt it.
If the decision is that the foreclosure must stop because of the failure of the lender to act in good faith and to follow the law, then that lender would have to go to District Court to seek relief.
Mediators are former judges, settlement officers, trained mediators and lawyers who have undergone a training program on foreclosure laws.
Information about the program can be secured at the Nevada Supreme Court Web site at nevadajudiciary.us or by calling program manager Verise Campbell at 436-9380 702-486-9380 in Las Vegas.
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