By now the government knows how to create a program that totally stinks at preventing foreclosures. As we reported late last year, the federal government’s Home Affordable Modification Program (HAMP), aimed to help up to 4 million people avoid foreclosure has been an abject failure, and its performance hasn’t improved in the ten months since.
But the government isn’t powerless to reverse the continuing tide of homeowners losing their houses, according to a new report by the Federal Reserve Bank of Boston. The researchers found that a few simple factors, including getting started early in the foreclosure process and forcing mortgage servicers to participate, determine which programs work and which don’t.
[Related Article: HAMP Fails to Save Homeowners from Foreclosure]
“By getting both lenders and homeowners to the table, foreclosure mediation has been somewhat successful at finding alternatives to foreclosure,” says Robert Clifford, author of the report.
One reason why HAMP has failed is that servicers don’t have to participate, according to a study by the Congressional Oversight Panel. Instead, the program uses cash incentives to pay servicers for modifications. But the payments are too small compared to the incentives servicers have to push homes into foreclosure, according to the Center for Responsible Lending.
Forcing servicers to participate may lead to better outcomes, the Fed found. Nevada is one of several states that allow lenders to foreclose without going to court. But borrowers can request that their pending foreclosure be handled by a state-run mediation program. If the lender refuses, the borrower can request a judicial review, which can lead to court sanctions.
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“This may partially explain why Nevada has reported more successful mediation outcomes than any other non-judicial foreclosure state,” the Boston Fed found.
Also important: foreclosure programs need to start early. Too often, government programs wait to be contacted by homeowners, sometimes after the foreclosure process has dragged on for months. In that time the homeowner’s savings accounts and credit rating may have been trashed, limiting their options for saving their homes.
“In the case of mediation, this means contacting homeowners when a foreclosure complaint is filed and facilitating conversations between lenders and borrowers early and often,” the study found. “Such efforts shepherd preventable foreclosures out of the pipeline.”
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Image: rokabiri, via Flickr.com