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Homeowners Avoiding Foreclosure Through State Mediation

Greg Bordonaro

August 17, 2009

The state’s hallmark foreclosure mediation program continues to have a high success rate for homeowners, but still relatively few people have chosen to participate in the program.

The service, which was part of comprehensive mortgage relief legislation passed last year, allows borrowers to meet their lender face-to-face to try to reach a settlement on an overdue mortgage.

Statewide, 2,932 foreclosure mediation cases have been completed as of May 31, and of those 60 percent, or 1,771 cases, have reached a settlement that allows individuals and families to stay in their homes. Of those who stayed in their homes, 41 percent or 1,224 homeowners, received a loan modification from their lender, according to data from the state’s judicial department.

Another 397 homeowners decided to leave their home but were able to reach an agreement with their lender to pay off the balance of their mortgage either through a short sale or a deed in lieu. Mediation remains unsettled in 26 percent or 764 cases.

Despite the high success rate, only 35 percent of eligible homeowners have actually participated in the program.

Of the 18,702 homeowners that are eligible to partake in mediation only 6,575 have actually used it. That low rate, some say, is a result of many homeowners being unaware that the program is available to them.

State lawmakers say that trend will change, however, and that participation rates will increase dramatically now that they have passed legislation that makes mediation mandatory for any foreclosure actions filed on or after July 1.

“Under the new mandatory mediation law, I’m confident that this program will benefit even more people and help to drop foreclosure rates in our state,” said Sen. Bob Duff, D-Norwalk, who is a co-chair of the bank’s committee.

Duff said the mediation program creates a win-win situation because a majority of individuals and families are able to stay in their homes, while banks and lenders are not left with vacant properties. At the same time communities are spared the drop in property values and increase in crime that go hand-in-hand with foreclosure.

Duff also noted that two other foreclosure relief programs that provide fixed-rate loans to homeowners facing foreclosure — the Emergency Mortgage Assistance Program (EMAP) and the Connecticut Families program — have provided more than $20 million in direct financial assistance to struggling families.

Both programs are operating through the Connecticut Housing Finance Authority (CHFA).

From its creation on Dec. 10, 2007, through Aug. 4, 2009, the Connecticut Families program has issued 72 fixed-rate, 30-year loans totaling $14.6 million. Fifteen more loans worth $3.1 million are currently reserved and being processed.

The EMAP program is available to Connecticut homeowners who have fallen behind on their mortgage payment because of a temporary financial hardship that is beyond their control, such as unexpected medical bills or loss of income.

From July 1, 2008, to Aug. 4, 2009, 64 loans were approved for up to $4.2 million in assistance ranging from a low of $97 to a high of $2,666. Total monthly assistance is $58,727, with the average monthly assistance at $1,012. In addition to monthly assistance, EMAP has issued $668,636 in funds to 56 homeowners to bring their mortgages current.

Those numbers are an improvement from late last year when The Hartford Business Journal reported that relatively few people were qualifying for the state’s foreclosure programs.

As of last November, only three loans were approved for the $64 million Emergency Mortgage Assistance Program. At the same time, 48 loans worth a collective $9.7 million had been approved for the CT Families program, while 11 more loans, worth $2.3 million, were being appraised.

In response to the low eligibility rates, lawmakers passed legislation during the latest legislative session that expanded qualification criteria. Effective July 1, the Connecticut Families program began to offer eligibility to homeowners who meet income guidelines and have either adjustable or fixed-rate mortgages. Previously, the program was only available for homeowners with adjustable-rate mortgages.

Meanwhile, the legislature opened EMAP eligibility to give CHFA more flexibility in determining what constitutes a significant reduction in income and to expand the circumstances that constitute a financial hardship. From July 10 to Aug. 4, 2009, 19 EMAP loans have been approved for $1.4 million under the new guidelines.

“These programs are working and, under the new eligibility guidelines, they’re going to work even better,” said Rep. Ryan Barry, D-Manchester, who is the other co-chair of the bank’s committee.