Casandra Sheperd is about to be evicted from her home in north St. Louis County.
On a recent afternoon, the soft spoken woman with an easy smile is standing in a room with 20 years’ worth of possessions stacked to the ceiling.
“Every box is hard, you know, because everything has a memory,” Sheperd says. “You know, you pack, you stack, you cry, but you keep moving."
Sheperd lost her job at an insurance company a couple of years ago and started getting behind on her mortgage payments.
When she reached out to her bank to see if something could be worked out, Sheperd says she had to keep resubmitting paperwork and her calls were endlessly transferred.
“I would have ran to go sit and talk to them face-to-face, I really would have,” Sheperd says.
Housing advocates say stories like Sheperd’s are all too common and justify a controversial new ordinance in St. Louis County that requires banks to offer mediation before foreclosure. Because, they say, every time someone like Sheperd loses their home it sends ripples throughout the entire community.
Bankers, on the other hand, are suing to block the ordinance and say it will lead to a string of unintended consequences.
The Ripple Effect
It’s pouring down rain on a recent afternoon and University of Missouri-St. Louis professor Todd Swanstrom is wheeling his Subaru through a Hazelwood neighborhood that’s been hit hard by foreclosures.
He’s studied the foreclosure crisis for the past four years and calls it a silent epidemic.
Peel back the veneer of modest homes with well-kept yards and Swanstrom says you’ll find a big problem lingering just below the surface.
“What it looks like in St. Louis County is that we have over 4,000 foreclosures a year,” Swanstrom says.
Swanstrom says foreclosures lower property values in the county by about $1 billion a year and diminish the tax base.
Then there’s the impact that they have on children.
“A recent study concluded that each foreclosure which forces kids to move out of school is the equivalent of that child losing a month of school,” Swanstrom says.
Swanstrom expects only a small percentage of people will choose to meet with lenders in the presence of a certified mediator, which are mostly retired judges.
Under the plan, banks could back away for any agreement that’s not in their best interests.
Swanstrom says mediation won’t completely fix the problem, but he thinks it will benefit some homeowners and help avoid mistakes.
Under a similar program in Nevada, which like Missouri does not require judges to review foreclosures, about 1 in 9 mediations led to an agreement that kept people in their homes.
Swanstrom says it might help banks, too, because in some cases they would avoid losses associated with foreclosures.
Lenders, on the other hand, say the ordinance will only cause problems.
Max Cook is president of the Missouri Bankers Association, which has sued the county to block the ordinance.
First, and foremost, he says the county has zero authority to enforce the mediation plan.
“The ordinance violates numerous constitutional and statutory provisions in the state of Missouri,” Cook says. “Not the least of which is statute that says when it comes to banking laws, and rules, and regulation, no entity, be it a county, a city, what have you, can pass an ordinance or a rule more restrictive than that of the state of Missouri.”
Then, Cook says there are practical concerns.
Under the plan lenders would have to pay the full $500 per mediation.
Cook says those costs and other fees, along with slowing down banks’ ability to get foreclosures off their books, could lead to unintended consequences.
“Now, if all of a sudden, you have a system where you can’t foreclose as designed by the state of Missouri via statute, lenders potentially could just say we’re just not going to loan money over there,” Cook says.
However, it’s unclear how mediation will impact credit -- there’s simply no research on the topic.
Lenders say special rules for mortgages in St. Louis County would throw a wrench in the gears of the big financing machine that drives much of the home loan industry.
In many instances, banks don’t actually own mortgages; rather, they’re bundled up in securities and sold to investors.
So, special rules might scare off investors, which lenders say could limit consumer choice.
They say that, in turn, would limit consumer choice and raise interest rates.
County Councilwoman Hazel Erby, who first introduced the mediation plan, says if they run into problems they’ll make adjustments.
Last week she introduced additional changes to the ordinance based on feedback from lenders.
She says despite the legal fight, pushing forward with the mediation plan was the right thing to do.
"Whether we win or lose, and I don't think we'll lose, will be a plus because it opened up a dialog regarding this whole process," Erby says.
On Monday, Associate Circuit Judge Brenda Stith Loftin ruled to keep a restraining order in place that prevents the county from moving forward with the mediation plan while the lawsuit continues, and officials with St. Louis City will also be watching the case closely.
St. Louis Mayor Francis Slay is pushing a proposal that would put a similar mediation program in place, and bankers say if the city moves forward with its plan, they’ll sue to block it there, as well.
Follow Tim Lloyd on Twitter: @TimSLloyd