The trumpeted programs engendered by the federal government and the big banks that have been rolled out to help distressed borrowers stave off foreclosure have thus far been all but impotent. Shamefully so.
Studies have shown that up to now only three percent of borrowers have received a loan modification that reduced their monthly payments, and only eight percent of distressed borrowers received any modification at all. In his recent column in The Atlantic, author Richard Posner posited his views on why. Based on data culled from small pools of mortgages representative of larger classes, banks have pre-determined that mortgage modifications are likely to be unprofitable insofar as the only means to a successful modification end is a substantial write-down of a borrower’s loan principal. And if banks do it for one borrower, other underwater and low-equity borrowers will expect the same and may intentionally default, or at least threaten to do so.
Then too, as home values continue to decline, since the assumption is that modifications don’t work, it’s better to foreclose straight-away and get the properties back on the market as soon as possible. And consider this position: though foreclosing and putting the property on the market is a de facto write-down of principal without difference to the bank, it’s better to do that than simply write it down for the distressed homeowners because they are considered high risk. This train of thought ranges somewhere between cynical and malevolent because the homeowner is distressed solely because the lending industry tore down the market in the first place, and squandered trillions of dollars of homeowner equity. And don’t forget, these very banks were given billions of dollars of bailout money from taxpayers, many of whom are, of course, distressed homeowners.
So the Nevada Legislature’s enactment of Assembly Bill 149 is propitious even if does only one thing—prevent the detestable propensity of lenders and mortgage servicers to foreclose on homeowners while the parties are ostensibly in loan modification negotiations. You see, this happens all the time. Once foreclosure proceedings have begun the distressed borrowers have roughly four months to save their homes, depending on the alacrity of the given lender or loan servicer.
Now, while the institution is demanding documentation from the borrower and then losing it on account of its own abject negligence or willful intransigence, the clock is ticking. Typically, as the trustee’s sale date is looming, the bank will offer a modification which will not fundamentally help the homeowner—but take it or leave it, the foreclosure date is two days away. Or the foreclosure agent, a separate entity entirely, simply may not have been instructed by the lender that negotiations are pending and the sale date should be postponed but, because one hand knows not what the other is doing, it forecloses anyway.
Studies have shown that up to now only three percent of borrowers have received a loan modification that reduced their monthly payments, and only eight percent of distressed borrowers received any modification at all. In his recent column in The Atlantic, author Richard Posner posited his views on why. Based on data culled from small pools of mortgages representative of larger classes, banks have pre-determined that mortgage modifications are likely to be unprofitable insofar as the only means to a successful modification end is a substantial write-down of a borrower’s loan principal. And if banks do it for one borrower, other underwater and low-equity borrowers will expect the same and may intentionally default, or at least threaten to do so.
Then too, as home values continue to decline, since the assumption is that modifications don’t work, it’s better to foreclose straight-away and get the properties back on the market as soon as possible. And consider this position: though foreclosing and putting the property on the market is a de facto write-down of principal without difference to the bank, it’s better to do that than simply write it down for the distressed homeowners because they are considered high risk. This train of thought ranges somewhere between cynical and malevolent because the homeowner is distressed solely because the lending industry tore down the market in the first place, and squandered trillions of dollars of homeowner equity. And don’t forget, these very banks were given billions of dollars of bailout money from taxpayers, many of whom are, of course, distressed homeowners.
So the Nevada Legislature’s enactment of Assembly Bill 149 is propitious even if does only one thing—prevent the detestable propensity of lenders and mortgage servicers to foreclose on homeowners while the parties are ostensibly in loan modification negotiations. You see, this happens all the time. Once foreclosure proceedings have begun the distressed borrowers have roughly four months to save their homes, depending on the alacrity of the given lender or loan servicer.
Now, while the institution is demanding documentation from the borrower and then losing it on account of its own abject negligence or willful intransigence, the clock is ticking. Typically, as the trustee’s sale date is looming, the bank will offer a modification which will not fundamentally help the homeowner—but take it or leave it, the foreclosure date is two days away. Or the foreclosure agent, a separate entity entirely, simply may not have been instructed by the lender that negotiations are pending and the sale date should be postponed but, because one hand knows not what the other is doing, it forecloses anyway.
AB 149 mandates that the beneficiary of a deed of trust (lender) participate in mediation before the trustee of the deed of trust may exercise the power of sale and the borrower’s home is foreclosed.
Only a handful of states have, or are contemplating, mandatory mediation. Nevada being the most hard hit state, it stands to reason that it should be on the forefront of borrower relief and AB 149 is the most logical program that’s come down the pike thus far in this implacable housing crisis.
By way of the mandatory participation imposed upon the lender, it accords, in essence, a temporary restraining order in favor of the borrower, precluding foreclosure until mediation is had.
Only a handful of states have, or are contemplating, mandatory mediation. Nevada being the most hard hit state, it stands to reason that it should be on the forefront of borrower relief and AB 149 is the most logical program that’s come down the pike thus far in this implacable housing crisis.
By way of the mandatory participation imposed upon the lender, it accords, in essence, a temporary restraining order in favor of the borrower, precluding foreclosure until mediation is had.
Very, very briefly, the program works like this:
§ Once a homeowner receives a notice of default—after July 1st; unfortunately for those in the maw of the process before then, the legislation is not retroactive—she may request, within 30 days, mediation with her lender.
§ Importantly, the default notice must include contact information from the lender or servicer for the person with authority to negotiate a loan modification on behalf of the lender, which is critical: if you can’t get through to someone with authority, all effort is futile.
§ The mediation must occur within 90 days after the notice of default is recorded. It’s worth noting that the representative of the lender must produce the original, or a certified copy, of the deed of trust, the promissory note and each assignment of either. For some loans, this may be problematic; so many of them were bundled into securities and collateralized debt obligations, determining who the actual owner of the note is is not necessarily a simple chore.
Finally, if a borrower believes that the lender has participated in bad faith, she may file a petition for judicial review once the mediation is concluded.
Now mind you, mediation is an alternative form of dispute resolution in which no opinion on the merits of either party’s position is rendered, nor does it result in an enforceable judgment.
Nevertheless, with the precipitous decline in fair market values easing somewhat and the implementation of this relief program, with a little luck, new foreclosures will be reduced, the current inventory of bank-owned homes will be absorbed and, finally, the market might return to a semblance of normalcy.
Now mind you, mediation is an alternative form of dispute resolution in which no opinion on the merits of either party’s position is rendered, nor does it result in an enforceable judgment.
Nevertheless, with the precipitous decline in fair market values easing somewhat and the implementation of this relief program, with a little luck, new foreclosures will be reduced, the current inventory of bank-owned homes will be absorbed and, finally, the market might return to a semblance of normalcy.
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