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August 2, 2009

Foreclosure Programs Offered, Subprime Examined

Judge Annette Rizzo speaking of Philadelphia’s Residential Mortgage Foreclosure Diversion Pilot Program: “Our mission is to keep people in their homes, but sometimes a graceful exit is even a good outcome.”

Judge Annette Rizzo speaking of Philadelphia’s Residential Mortgage Foreclosure Diversion Pilot Program: “Our mission is to keep people in their homes, but sometimes a graceful exit is even a good outcome.”

The tsunami of foreclosures that has swept the U.S. market and rippled throughout the world’s economy was the subject of several CLE programs at the ABA’s Annual Meeting in Chicago.  The various panels examined how we got here and what the foreclosure crisis means to lawyers and their clients.  Panelists introduced new programs unique to their communities, but applicable more broadly when tailored to local situations.  Here are a couple of examples.

Prevention: A Win-Win Solution

One session, sponsored by the Commission on Homelessness and Poverty, focused on the value of prevention. 

Citing a successful model in Philadelphia, Judge Annette Rizzo, Philadelphia Court of Common Pleas, urged a packed room at the Hyatt Regency Chicago to “partner with well-trained housing counselors” to head off foreclosures.  The court-driven Philly Residential Mortgage Foreclosure Diversion Pilot Program was formed about a year ago.  The key stakeholders came together to see how all parties could benefit from a collaborative approach.  The mayor’s office provides “the human touch,” according to Rizzo, actually going door-to-door in vulnerable neighborhoods urging people to participate in the program if they are in danger of foreclosure. 

Rizzo said that the “heart of the program” is getting homeowners an appointment with trained housing counselors to determine their level of risk, and if necessary, start the process of a workout.  In addition, owner occupied residential premises must be scheduled for a formal Conciliation Conference between borrower and lender before any sheriff sales can take place.  More than 5,000 conferences have occurred between lenders and homeowners, 1,500 homes have been saved, with 1,400 more in the queue for discussion and remediation in the year since the program began. 

Philadelphia’s program has become a model for cities and states nationwide, and has even received attention from as faraway as Norway and Sweden.

Obstacles Overcome in Ohio

Under the leadership of Governor Ted Strickland, Ohio has been out ahead of the rest of the country on foreclosure solutions.  In 2007, a task force representing all the major stakeholders, government agencies and lenders formed “Save the Dream” to focus on prevention, intervention and homeowner assistance. 

Sponsored by ABA Section of Dispute Resolution, the panel “Can Mediation Help Save the American Dream? Lessons Learned and Obstacles Overcome in Ohio” discussed the benefits of mediation in the foreclosure process and the importance of reaching people before foreclosure becomes inevitable.  Key to the program is the one-stop statewide telephone hotline which offers triage for those not yet in foreclosure and those already in court. 

Another important element of the program’s success has been the intense marketing and community relations efforts including media outreach, community events, and the printing and distribution of informational materials, according to Jacqueline Hagerott, manager of the Supreme Court of Ohio’s Dispute Resolution Section.    

 Seventy-five percent of the callers – those not yet in foreclosure – are referred to trained housing counselors.  About 15 percent – already in court foreclosure – are referred to legal aid if they meet poverty-level income restrictions.  Seniors are automatically connected to legal aid, as well.  More than 1,300 pro bono lawyers are involved in the program. 

 While all of Ohio is still hard hit by the foreclosure crisis, in the first quarter of 2009 foreclosure filings in Cuyahoga County alone have dropped 30 percent.

 Down Under: New Developments in Subprime

Deregulation, speculation, relaxed underwriting standards, new global investors, innovative new loan products and appreciating home values all contributed to the foreclosure mess that has undermined both the national and world economies.  But long before these factors kicked in, the practice of subprime lending was sowing the seeds of the crisis to come. 

In a panel sponsored by the Section of Litigation, speakers from the state, federal and regulatory perspective revisited the impact of subprime lending on communities, resulting litigation and regulatory trends that have resulted.

Compared to the savings and loan crisis of the 1980s, which cost taxpayers an estimated $160 billion, the current mortgage crisis is costing upwards of $3.6 trillion and an unprecedented level of intervention that is not limited to the United States, according to Jeff Nielsen, of Navigant Consulting in Washington, D.C..  The resulting litigation from the crisis includes classes of borrowers suing lenders, securities class actions, and suits brought by institutional investors and others who held mortgage-backed bonds.  According to Nielsen, “2008 saw doubling of the filing of suits over 2007, and in 2009 there is no let-up in the number of filings.” 

Robert Burson from the Securities and Exchange Commission reported that as the agency saw what was happening, they formed a subprime working group in March 2007 to address the immediate effects of the crisis and identify areas of abuse.  Sorting out the deliberate misreporting from those who made bad judgment calls or miscalculations has been particularly challenging, he said.

Thomas James of the Illinois Attorney General’s office predicted, “it is going to be a rough ride ahead, if you are advising financial institutions,” because more activity on the part of state attorneys general is going to be seen as they continue to collect complaints about unfair practices and discrimination. 

Resources

  • Ohio Save the Dream, Save the Dream  
  • Freddie Mac resources http://www.freddiemac.com/service/msp/avoid_foreclosure.html
  • http://www.freddiemac.com/learn/pdfs/service/nplresource.pdf
  • FDIC: Beware of foreclosure rescue scams
  • http://www.docstoc.com/docs/6848646/Beware-of-Foreclosure-Rescue-Scams—FDIC-Brochure
  • Residential Foreclosure Mediation Resources for ADR Professionals

Comments (1)

  • allen
    9:35 AM February 6, 2010

    i can not tell who to trust anymore i gave money to lawyer and i have heard nothing from hfc . still waiting to get notice of forecloser.i hope i did right thing.