In the face of a tremendous snow storm, another storm received air time this morning. The housing crisis has resulted 1.2 million foreclosed homes, with promise of a million more during 2011, the anticipated peak year. So far, 27 states or localities have created some form of foreclosure mediation program to deal with the storm, with Washington State close behind.
The federal government’s voice has recently risen above the squall. In November, Vice President Joe Biden highlighted foreclosure mediation as one of three priorities for the Access to Justice Initiative. A U.S. court in Rhode Island yesterday declared the Bankruptcy Court properly exercised its power in creating a foreclosure mediation program. Also yesterday, the Center for American Progress’ final report in a policy series on foreclosure mediation discussed ways the U.S. government can encourage establishment and improvement of these programs. Today, the Senate Committee on the Judiciary held a hearing entitled, “Foreclosure Mediation Programs: Can Bankruptcy Courts Limit Homeowner and Investor Losses?”
The hearing today highlights the communication challenges prevalent in the housing crisis and how mediation can improve communication between borrowers and servicers. The Honorable Judge Drain, who connected a foreclosure mediation program to his bankruptcy court proceedings, emphasized that lenders were actually the first to request a venue in which to sit down and discuss options with borrowers. Out of 2,000 requests for loss mitigation since the program began, about half resulted in an agreement. Judge Drain reaffirmed that mediations have value beyond agreements. “Mediations that did not result in an agreement had a good effect. Borrowers saw the dollars and cents reason they could not keep their house. . . . This is no small achievement.”
Not all were in favor of mediation as a process to facilitate these communications, however. Attorney Andrew Grossman expressed concern that court mediation programs are coercive and force lenders to consider options they would not have otherwise, options that may not make sense for all involved. Grossman also worried about the appropriateness of judges determining whether parties negotiate in good faith. Good faith, to Grossman, is an amorphous requirement that a judge should not be enforcing through court-annexed programs. Finally, Grossman was concerned that no one is monitoring and evaluating mediation programs. He believes courts don’t have data collection resources to track effectiveness. This lack of transparency, he says, makes it difficult to evaluate mediation program effectiveness.
Good faith participation is a concern, as is data collection. However, the foreclosure mediation buzz hasn’t seemed to lead advocates or critiques to explore what mediation is. Official mediation is inherently non-coercive: participation and agreement voluntariness is a core value of mediation. Even for so-called “mandatory” programs, almost all have the possibility of opting out. Similarly, mediation is inherently confidential. While data collection that reflects overall program operations (settlement rates, numbers of participants, numbers who complete mediation) should be published to evaluate program processes, court-connected mediation programs cannot be transparent with regards to individual mediation discussions without threatening the very fabric of mediation. Without confidentiality agreements, negotiations in mediation would be discoverable in lawsuits, would threaten both parties’ ability to fully negotiate, and would jeopardize the neutral nature of the proceeding. Finally, mediation is a neutral process that does not force either side to choose an agreement. Mediation is about everybody’s best interest, not just one side’s. If the agreement does not fit with people’s needs, the mediator is not to push a certain result. As John Rao, an attorney at the National Consumer Law Center, testified, foreclosure mediation programs should be consistent with other court-annexed mediation programs in federal and state courts.
When you want to drive somewhere in a snow storm, you first have to dig out your car and envision the best route before getting home. In the midst of the foreclosure storm, I wish that all sides would seek to understand more about the process, not just the potential outcomes, over which they are fighting.