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Counting Up the Costs and Benefits to Lenders of Foreclosure Mediation

Jennifer Shack, November 19th, 2012

Is foreclosure mediation a positive or a negative for lenders? An open letter from Connecticut’s Congressional delegation to the Federal Housing Finance Authority (FHFA) provides sound evidence that it’s a financial positive for lenders to participate in a well-functioning mediation program. FHFA, which regulates Fannie Mae and Freddie Mac , is proposing to increase guarantee fees for mortgages in Connecticut, Florida, Illinois, New Jersey, and New York, stating that laws and procedures enacted in those states have extended the foreclosure process and increased the costs of foreclosure on Fannie Mae and Freddie Mac.

In response, the Connecticut delegation argues that increasing the guarantee fees punishes those states that have instituted measures to make the foreclosure process fairer to homeowners. Further, they say the savings to Fannie Mae and Freddie Mac from agreements reached in Connecticut’s mediation program more than offset the costs caused by delays in the foreclosure process. According to the letter, each time an agreement is reached that leads to homeowner retention of the home, an average of $12,000 is saved by those entities, with a total savings of about $27.6 million a year from the mediation program in the state. Agreements for short sales and other alternatives to foreclosures lead to a savings of another $15 million per year. This more than offsets the $14.6 million FHFA has calculated is the annual cost to Fannie Mae and Freddie Mac of delays in Connecticut’s foreclosure process.

The delegation used FHFA data to derive the amount saved per home, and relied on the program’s data on agreements reached and retention percentage to calculate the entire savings. This is a strong argument for investing the time it takes to track outcomes of mediation programs.

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3 Responses to “Counting Up the Costs and Benefits to Lenders of Foreclosure Mediation”

  1. Kent Lawrence says:

    …and this is where good information may cause (if people pay attention) better policy and action decisions by players in a system.

    • Jennifer Shack says:

      Very true, Kent! The reason Connecticut’s delegation could respond so forcefully against the proposed policy is because the statewide foreclosure mediation program is collecting good outcome data. Their argument would be much weaker without it.

  2. Anne Knight says:

    Wow, those are some big numbers! Hopefully the lenders take that to heart and embrace the mediation process. Nothing speaks to big business like the “bottom line.”

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