The end of March marked the end of two madnesses: Connecticut’s journey to the championship and a foreclosure mitigation bill’s journey through the Senate Judiciary Committee. But the journey is over in only one court.
On March 31, the Senate Judiciary Committee approved the first federal bill to back foreclosure negotiation programs. While foreclosure is usually a state issue, federal bankruptcy courts deal with home mortgages as one of a filer’s debts. Therefore, a recent court case grappled with the issue of whether a federal court could create processes to manage foreclosures. In January, a federal court declared that bankruptcy courts have jurisdiction to create programs for servicers and borrowers to talk about properties that may be foreclosed on.
The federal Limiting Investor and Homeowner Loss in Foreclosure Act (S. 222) is modeled after the Rhode Island loss mitigation program (the subject of the aforementioned legal battle) and a similar New York mediation program. S. 222 permits bankruptcy courts to create loss mitigation programs for debtors and debt holders to discuss foreclosure alternatives. After heated discussion, and in the messy foreclosure milieu that includes the House ending the Home Affordable Modification Program (HAMP), the bill passed out of the Committee by a vote of 10-8. The blogosphere sent up a cheer: the feds were finally supporting foreclosure mediation! But is this really what they think it is?
While encouraging bankruptcy courts to create these programs may provide a valuable point of contact between borrowers and servicers, S. 222 is not a foreclosure mediation bill. Certainly, some loss mitigation programs may include mediation (and I hope many do). But, nowhere in the bill is there mention of a third-party neutral – a mediator, shall we call it? – facilitating the conversation. Nor are there any rules, guidelines, or standards for the parties to follow. Mediation without a mediator, without a process, without ethics, is no mediation at all.
This points to a larger problem in the emerging world of alternative foreclosure programs. Many processes that help borrowers and servicers discuss options call themselves mediation when, in fact, the informal process proposed is mitigation. Mediation may explore ways to mitigate a foreclosure, but meditation does not guarantee mitigation. By confusing the terms, mediation is getting an incorrect (sometimes negative) name. I’m concerned this may jeopardize attempts to implement actual mediation programs in the future.
I’m not opposed to foreclosure mitigation programs: quite the opposite. But let’s call the ones that don’t use mediators something other than mediation, eh?
As for S. 222, a bi-partisan effort by Sen. Sheldon Whitehouse (RI), the primary sponsor, and Sen. Jon Kyl (AZ) will help the bill move through the Senate. It’s been placed on the Senate legislative calendar for later this spring.