The few state foreclosure mediation programs in the U.S. that force lender or homeowner participation showed a far greater success rate when compared to taking part voluntarily, according to a research note from the Federal Reserve Bank of Boston.

Connecticut launched an aggressive number of programs in 2008 including mediation and provides the most regularly updated data. Of the roughly 9,400 homeowners in the state who participated in the program through Jan. 31, nearly 79% avoided foreclosure and more than half received a modification.

Of those that couldn't manage to stay in the home, nearly half were granted a "graceful exit" either through short sale or deed-in-lieu.

Other programs found similar success rates such as the one in Philadelphia, where 84% of participants avoided foreclosure. The success rate in Nevada, a nonjudicial foreclosure state, had an 89% success rate, and another in Cuyahoga County, which encompasses Cleveland, held a 61% success rate.

"Unfortunately, such high rates of success have not been universal," said Boston Fed analyst Robert Clifford, the author of the report.

In the first 18 months of New Hampshire's voluntary mediation program, just 14 settlements were reached in more than 100 mediation cases.

"This record mostly reflects the fact that mediation is voluntary. The program administrator has found it difficult to get lenders to participate," Clifford said.

Maryland, another state that does not force lenders or homeowners into its mediation program, showed a 10% participation rate in its program, which started in July 2010. As a result, roughly one-third of the cases completed mediation without avoiding foreclosure.

In Maine, another opt-in state, Clifford found only 21% of agreements found an alternative to foreclosure, and nearly 55% failed to reach an agreement at all. In another 23%, the homeowner failed to show.

Clifford did say many programs tend to produce lackluster numbers, especially in their early stages. For example, not all states were tracking participation rates, including Connecticut. After a doing so, though, it began allowing borrowers to opt in automatically in 2009 when a foreclosure filing came through, boosting the participation rate.

When the reports then improved, the Connecticut State Legislature rewarded them with an additional $3 million on top of the $2 million to start the program, Clifford said.

Clifford suggested the most success for foreclosure mediation came from programs that initiated the process as early as possible and for ones where participation by both the lender and homeowner was assured.

He added use of the courts proved beneficial even in areas like Nevada where the foreclosure process is nonjudicial. Funding becomes more complicated, he said. Programs that rely too heavily on fees from lenders and borrowers can have a negative effect on participation rates, while those that rely on state and city funds will see the scale of their program limited.

Better reporting, he said, would boost participation and like Connecticut could lead to better success rates and more funding.

"Programs that have done so have improved participation rates and results while gaining public support and additional funding," Clifford said.

Write to Jon Prior.

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