States Can Learn from New England's Foreclosure Prevention Programs

As delinquencies and impending foreclosures rose over the past several years, New England states responded with foreclosure prevention programs, generally falling into one of two categories: foreclosure mediation and financial assistance. Federal Reserve Bank of Boston’s New England Public Policy Center just released a report examining these state efforts and determining ways other states can learn from their examples. Five of the six New England states have their own mediation programs, and Massachusetts created a program allowing negotiation without a mediator. Mediation programs have the potential to help a broad range of homeowners because they do not impose credit or income requirements, as most financial assistance programs do, states policy analyst Robert Clifford in the report. Mediation programs vary greatly depending on state foreclosure laws. Of those who completed foreclosure mediation in Connecticut, 78.9 percent were able to evade foreclosure, according to the Fed report. In contrast, Maryland has only acquired a 10 percent participation rate in its mediation. Thus its effect is much less significant.The report points out that Connecticut is a judicial state, whereas Maryland is a non-judicial state. Additionally, Connecticut’s mediation program is automatic if the homeowner returns a form received with the foreclosure filing, whereas Maryland homeowners have to opt in to a mediation program on their own. “Many of Maryland’s challenges also reflect its opt-in approach, as well as a lack of early intervention,” the report states. The second type of foreclosure prevention, financial assistance, generally consists of a loan modification-specifically, reducing payments and interest rates while adding to the principal and term of the mortgage. Connecticut and Maine are the only New England states to offer financial assistance programs for borrowers facing foreclosure. Clifford says other states can learn from New England’s efforts to stem foreclosures. One of the most important elements of any foreclosure prevention program is early intervention. It is important to bring borrowers and servicers together early in the foreclosure process, Clifford says. Second, Clifford suggests maximizing participation by offering automatic enrollment in mediation programs and removing restrictive qualification requirements for financial assistance programs. States can leverage their judicial systems or housing finance authorities to administer programs. Clifford also recommends states track the success of their programs and determine any weaknesses to further develop programs and increase their reach. The Boston Fed report comes just after Florida Supreme Court Judge Charles T. Canaday ordered an assessment of the success of its mediation program. Canaday is also requiring recommendations for the management of pending foreclosures “if the mandate for managed mediation in these cases is eliminated.”