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State Legislature Considers Extending Foreclosure Mediation Program

Kenneth R. Gosselin

March 11, 2010

The crown jewel of Connecticut's home mortgage rescue efforts — the state's foreclosure mediation program — is a model for other states and has helped keep 3,400 borrowers in their homes since 2008.

Now, 9,600 borrowers are lined up in the mediation program, hoping to work out deals with their lenders. But there's a problem: The program's two-year run is set to end June 30.

Judge Douglas Mintz, who oversees the foreclosure docket in Superior Court in Stamford, said the mediation program anticipated the "tsunami" of foreclosures. But Mintz, who also is chairman of the court system's foreclosure committee, told a legislative panel this week: "We were hoping that it would have passed by now. ... We don't see it turning around."

If it weren't for the mediation program, Craig and Lori Calvert might not be in their Farmington home right now.

"If there is a good thing about foreclosure, it's mediation," Lori Calvert said. "There's a lot of comfort knowing there were other people in my boat. You don't feel so alone."

A bill to extend the program another year will get a public hearing today in the legislature's banks committee. There is support in the legislature, and on Wednesday, Gov. M. Jodi Rell's office said the governor will back the bill.

Even so, the state must still find $5 million to fund the program, which includes 24 mediators stationed in courts around the state.

That's a relatively small allocation as far as state budgets go, and most expect the money to be found. But the state is looking to cut tens of millions in expenses and already faces a deficit of a half-billion dollars in the current fiscal year. That makes finding a source of funding tricky even with political support in place.

The broader question is whether the program should remain in place permanently.

When the mediation program began in 2008, it was expected that the foreclosure crisis would have abated by now. But a recent report showed that seriously delinquent home loans — those 90 days or more past due — and mortgages in foreclosure remained at record highs in Connecticut at the end of 2009.

As of Feb. 28, the mediation program has kept 3,386 borrowers in their homes, helping them negotiate new loan terms or other agreements.

Another 770 borrowers reached agreements to leave their homes after a short sale — a sale in which the lender agrees to accept less than the mortgage balance — and other agreements that transfer title.

A total of 1,473 borrowers could not reach agreements to avert foreclosure.

Foreclosure mediation is open to owners who occupy the property and live in one- to four-family houses. Once a borrower seeks out mediation, a lender or loan servicer is compelled to participate.

"The judicial branch is extremely pleased that this program has been able to help so many people in the very short time that it has been in existence," said Roberta Palmer, the program's administrator.

Fear Of Losing A Home

In 1998, the Calverts were excited about the prospect of owning a home. They bought a 640-square-foot cottage on the Farmington River near town hall — and later knocked it down to make way for a 1,500-square-foot colonial.

Except for the framing, they did most of the work themselves: Sheetrock, plumbing, electrical. The couple worked side by side clearing trees on the lot.

But in 2002, Craig Calvert, 46, was slowed by back trouble, which led to a series of surgeries that put him out of work for months at a time. He is now working for Comcast as a cable installer.

Three years ago, Lori Calvert, 35, a supervisor of group homes for the Hartford-based Oak Hill school, was diagnosed with a rare immune system deficiency that is robbing her of her sight.

Faced with higher medical bills, especially for prescriptions, and with Craig out of work, the couple fell behind in their payments and were served foreclosure papers last April.

Altogether, they now owe $230,000, including late fees and other penalties.

Lori Calvert remembers well the worry about losing the house, where the couple have raised 6-year-old Zachary.

"You don't sleep. You don't eat," Lori Calvert said. "It weighs on you constantly."

Lori Calvert said she and her husband want to honor their agreement to make mortgage payments and are not looking for an easy way out.

The Calverts said they didn't know much about the mediation program but once they were in it, they found the mediator and staff helpful and willing to explore various options.

"When you're dealing with lenders, they are not exactly friendly all the time," Lori Calvert said.

In July, after a single mediation session, they were approved for a loan modification that will reduce their mortgage rate from about 7.8 percent to 3.4 percent for the first five years, lowering the mortgage payment from $2,000 a month, including tax and insurance escrow, to $1,600.

The rate will eventually rise to 5.3 percent. The mortgage will run for 40 years.

The Calverts made it through a three-month trial period, making all payments on time.

They hope someday to put the finishing touches on the house: trim around windows and doors, countertops in the kitchen and hardwood floors.

What's missing means very little, Lori Calvert says.

"There's running hot water in the kitchen," she says. "It doesn't have to be pretty. I have my house."

An Essential Program

State Rep. Ryan Barry, D-Manchester, banks committee co-chairman and an architect of the mediation program, said extending the program another year is reasonable, though housing advocates are pushing to make it permanent.

"We don't know what the climate is going to be more than one year out," Barry said.

Housing advocates say the mediation program is essential to keeping neighborhoods stable, easing the number of empty homes and value declines that experts say hit homes surrounding a foreclosed property.

But they also say legislators should impose tougher sanctions on lenders and loan servicers that don't come to mediation sessions prepared to negotiate.

Erin Kemple, executive director of the Connecticut Fair Housing Center in Hartford, said loan servicers shouldn't be permitted to collect late fees on the mortgage or charge the borrowers for their attorney fees if they aren't negotiating.

"It's frustrating," Kemple said. "People have to come back four or five times, take time off from work, lose pay."

Thomas Mongellow, a lobbyist for the Connecticut Bankers Association, said the association supports the mediation program but not stricter provisions.

"There are situations that the lender's representative may not be available," Mongellow said. "There are so many foreclosures across the country that the large servicers are dealing with."