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Servicing

Pennsylvania mortgage foreclosure diversion program benefits servicers

December 13, 2013

A blog submitted to HousingWire.com a few weeks ago debated the value of the Mortgage Foreclosure Diversion and Conciliation Programs in Pennsylvania. On one hand, it recognized the programs potential for success, but also gave readers a look at some of the negatives.

Attorney Michael McKeever, Esq., had a slightly different view and offered the response below. Here is the original article.

Our law firm has had extensive experience representing creditors in Mortgage Foreclosure Diversion and Conciliation Programs in Pennsylvania. We have found that there is much common ground among servicers and their investors who want to reduce or eliminate foreclosures delays and their attendant losses and the homeowners facing economic hardship.

Both parties desire a level of certainty, predictability and a clear path to resolution.

The resolution doesn’t always mean the homeowner stays in the home, but, almost to a person, those homeowners who participate in the Diversion/Conciliation process, leave with a much clearer understanding of foreclosure and with less antagonism towards their lender or towards the courts.

They are also less likely to file a later bankruptcy, contest a foreclosure, seek media attention or seek further court delays.

While there are a very small percentage of property owners and their counsel who use Diversion/Conciliation program solely to delay a foreclosure, those participants can be identified early on in the process and, with focused and zealous advocacy, delays can be avoided or reduced.

I have been a member of the Philadelphia Mortgage Foreclosure Steering Committee since 2004.

Our multi-partisan committee is composed of creditor’s rights attorneys, legal services attorneys, housing activists and counselors, court personnel and government officials. The committee began planning a foreclosure diversion program in Philadelphia in 2008.

I have also had the honor to serve the judiciary through the Pennsylvania Supreme Court’s Administrative Office of the Pennsylvania Courts and in several other counties (Allegheny, Delaware, Lehigh, Monroe, etc.) since 2008 as these counties began building their case management response to the growing number and complexity of foreclosure cases.

In my practice, I have spoken often with senior mortgage servicing executives who had a sincere desire to assist homeowners in financial distress and to pursue foreclosure as a very last resort. I also spoke with judges and court management who expressed grave concern about their ability to handle an onslaught of cases without implementing proper management controls.

A pragmatic and holistic approach was needed in 2008 that minimized delays, maximized homeowner involvement and closed the disconnect that existed.

A five year study of the Philadelphia diversion program found that 70% of homeowners appeared for the mandatory conferences and were assigned free housing counselors.

Other program statistics revealed that and there were about 2,400 successful loan resolutions, that each foreclosure matter had an average of 2.2 hearings, which equates to an average delay of about 90 days. The study also found that the delays were equally the responsibility of homeowners without all required paperwork and servicers requesting extensions to review submitted paperwork.

The large majority of homeowners utilizing diversion programs do so in a sincere effort to resolve their mortgage situation with their lender.

More importantly, the programs work to create a consistent approach to delays in the foreclosure process, reduce the number of litigated cases following diversion, reduce bankruptcy filings, reduce and eliminate state and federal legislative inquiries, reduce headline and reputational risk matters, eliminate oppressive legislative responses and other proposals that would likely double the foreclosure costs/fees and timeline in the Commonwealth while encouraging delay and obfuscation.

The diversion programs do work to make order out of chaos and to provide a consistent framework for loan resolution. They are not perfect, but, in my experience, they are generally fair and balanced and the Courts continuously solicit input on the practical impact of how their programs work in reality.

The programs provide servicers time to adequately review a loan modification proposal or other workout options in an ever-evolving web of federal regulations. Servicers who can identify loans as non-owner occupied can certify that at the beginning of the foreclosure process and avoid lengthy delays.

Likewise, servicers that have effective loan modification outreach and adequately document those efforts and response can likewise avoid substantial or any delays.

The programs developed since 2008 helped to diffuse a very real political threat to foreclosure in Pennsylvania, a moratorium such as the one imposed in 1983 (that lead to the development of the HEMAP program), proposed statewide, mandatory mediation programs, or a balkanized system where housing activists and their attorneys would have had free reign to create a procedural morass on a county by county basis.

The issue for creditors rights’ attorneys in 2008 and always is: Do you take a seat at the table and find common ground and create effective programs or do you sit back and complain that they got it all wrong?

Common ground also lead to our law firm’s decision in 2011 and 2012 to take the lead and work with housing activists, legal services attorneys, the Pennsylvania Housing Finance Agency and other parties on the passage of Act 70 of 2012 which dedicates $66 million dollars from the National Mortgage Settlement towards the HEMAP program.

HEMAP is the Homeowners Emergency Mortgage Assistance Program; this program provides loans which bring defaulted mortgages to a current payment status for qualified homeowners using public funds and results in about 3,000 less foreclosures each year.

Eighty five (85%) percent of the loans are eventually paid back for those homeowners. Act 70 also better defined available defenses to a foreclosure under Act 91 of 1983. This will prove to be a long term benefit to the mortgage industry.

While politics always has something to do with court programs such as these, I have yet to encounter a judge who used these programs as a way to garner votes. Such statements are not only disrespectful to judges, they undermine the integrity of the judicial process.

Every judge and court that created these programs generally did so on a “pro bono” basis; they do not receive extra pay and often rely on their own staff to handle these dockets, as well as carrying a full load of non-foreclosure cases.

In contrast, other states and jurisdictions have spent allocated resources that would have been better spent on direct payments to borrowers.

Although some may see Diversion/Conciliation programs as an attack or infringement on the mortgage industry, in fact, the Courts generally were addressing this from a case management perspective.

Growth in the number, complexity and impact of foreclosure filings was well documented in 2008 and the impact was, for the first time since the Great Depression, felt nationwide.

Courts were seeking to reduce the multiple entry points encountered in foreclosure cases, such as: late filed answers, petitions to strike or open judgments, increase in contested foreclosure cases and jury trial demands, last-minute sheriff sale postponement motions or requests (some of which consisted of communications from elected officials to Court officials), headline cases, “Action News” entreaties and the like.

Courts desired to create consistency in around how, when and in what format a homeowner approaches the court. Professionally managed courts are not altogether different than mortgage servicers and their counsel.

They create processes and manage exceptions. Courts identified an issue, assessed the scope and designed a process based on fairness, transparency and accuracy.

Courts have an intense desire to move cases from point A to point B in a timely and efficient manner that minimizes impact on public spending, reduces or eliminates appeals and maximizes return – in this case, the return is fairness to all litigants.

Foreclosure diversion programs also reflect a growing trend within Court systems that recognize that unrepresented parties in civil matters have a large impact on resource allocation and may create perceptions of unfairness in the judiciary, that those who can afford lawyers fare better than those who cannot.

Fairness, of course, is the foundational element of our system of justice. Civil Gideon programs are envisioned to provide litigants access to free or subsidized legal representation in certain critical areas or to provide low impact alternatives to resolving disputes.

These programs should carefully balance the rights of all parties. In part, most Courts support these programs as judges are often placed in the very delicate position of watching an unrepresented party make critical mistakes in the handling of their case or suffer consequences as a result of inaction, often leading to late filings or attempts to “undo” what has already been done.

Further, beyond the courtroom walls, there may be a greater impact to a local or federal government as a consequence: such as homelessness, increased access to food banks, poor choices leading to police involvement, etc, with greater impact on court resources or governmental resources.

The impact beyond the courtroom walls was in the forefront of the Pennsylvania’ courts as they considered diversion programs. A holistic approach that provides information and directs homeowners to available resources is important and on-going. Diversion programs will continue to evolve as new regulatory frameworks takes hold and perhaps, they may be discontinued as foreclosure volumes decrease and pre-foreclosure resolutions increase.

We look forward to having a voice and working with our clients, the courts and homeowner advocates to create programs that benefit our clients and to maintain the integrity of the judicial process - avoiding foreclosure of a qualified homeowner is a very welcome benefit for this effort.

-- Michael McKeever, Esq.

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