Mediation is reducing foreclosures

By Buck Wargo (contact), In Business reporter

Fri, Nov 20, 2009 (3 a.m.)

Nevada’s new foreclosure mediation program is paying dividends already.

The state fared better than the nation as a whole in October in the foreclosure-filing rate that analysts said is directly attributable to the program implemented July 1.

The program gives homeowners who receive a notice of default from lenders the right to seek mediation.

Although Nevada kept its No. 1 ranking in the nation in foreclosures, filings fell 26 percent in October from September and were down 4 percent from October 2008. Compare that with the country as a whole: Filings in October rose 19 percent compared with October 2008.

RealtyTrac spokesman Daren Bloomquist said the mediation program helped lower the numbers in Nevada because of a slower flow into the foreclosure pipeline.

“That is the only thing that we can see,” Bloomquist said. “That is the only thing that is different in the last few months in Nevada.”

Statewide, notices of default on home payments dropped 10 percent from October 2008, and scheduled foreclosure auctions were down 6 percent. Bank repossessions, however, rose 8 percent.

Bloomquist said when mediation programs were implemented in other states, foreclosure filings dropped temporarily. In those states that just slowed the foreclosures process, the filings bounced back to where they were before. But he said Nevada’s program gives homeowners a chance to work out a deal with lenders and that makes a difference.

“It does seem like the state mediation program, as opposed to just a delay, has been more successful in reducing the percentage of foreclosure filings,” Bloomquist said. “It still comes back, but not as strongly as states with a delay (only).”

Under the program, lenders are required to offer mediation to homeowners, and those meetings must be scheduled within 80 days from the foreclosure filing. Lenders can’t proceed with a foreclosure unless they get certification they took part in the mediation if requested.

Lenders aren’t required to work out an agreement with the homeowner, but must have in attendance a person who has the authority to modify the loan.

Bloomquist said it’s possible that lenders slowed issuing notices of default because they have to adjust and have enough staff to handle mediations.

He added another reason the drop in foreclosure filings is that home prices have started to stabilize. That might give lenders more impetus to approve a short sale in which the buyer can sell the home for less than is owed on the property.

“They are taking distressed inventory off the table before it hits foreclosure,” Bloomquist said.

That could mean a steadying of the foreclosure problem despite the recession leading to more people defaulting on loans, he said.

“A pattern seems to be developing that we may have a steady flow rather than a longer, bigger wave that some people were expecting,” Bloomquist said.

As of Nov. 4, the Nevada Supreme Court, which oversees the mediation program, reported 3,332 requests for mediation and 157 completed so far.

The success rate for the program has yet to be calculated, said Bill Gang, the court’s spokesman.

Robert Noggle, a Las Vegas real estate attorney with Black & LoBello, said anecdotal evidence he has gotten from mediators shows about 60 percent of the first round of mediations have had positive outcomes.

“Positive” means something happened with the loan to prevent it from continuing in the foreclosure process, he said. That includes having the principal reduced, interest rates lowered or the lender agree to a short sale, Noggle said.

“I think considering how pessimistic people were at the beginning of this, it has been a positive step for Nevada,” Noggle said. “The program is really a game changer for homeowners in Nevada.

“I think this program will prove out over time. As more people learn what the benefits are, there will be more participation,” Noggle said.

Bill Uffelman, president and CEO of Nevada Bankers Association, said some “bumps” occurred. One concern some lenders have had is mediators being advocates for homeowners rather than a neutral party. But he said the said the program is working.

“It is helping, absolutely,” Uffelman said. “It is not a failure.”

Uffelman said it’s too soon to know what the long-term results will be. A loan that gets modified today to help the homeowner stay in the home may fall back in default if someone loses his or her job, and in a weak economy, that’s a possibility, he said.