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Economy & Business

St. Louis County considers foreclosure mediation

This article first appeared in the St. Louis Beacon, June 1, 2012 - The St. Louis County Council is mulling over legislation to set up a mediation process for residents facing foreclosure. But at least one group says the measure hasn’t come soon enough to help homeowners in jeopardy. 

And at least two organizations representing lenders are either skeptical or downright opposed to the idea.

Councilwoman Hazel Erby, D-University City, said she is working on a bill allowing a homeowner facing foreclosure to enter mediation with the lender and servicer of a loan. Mediation involves a homeowner, lender and servicer meeting with a a third party such as United States Arbitration and Mediation.

Such a service would be the first of its kind in Missouri, a “non-judicial” state when it comes to foreclosures. In general, foreclosures take longer in "judicial" states – such as Illinois – that require court action to foreclose on a home. Non-judicial states require documentation to be filed through the appropriate channels showing that a homeowner isn't living up to financial obligation.

Erby said that the ordinance would have penalties if lenders don’t participate in the mediation.

Beyond Housing President and CEO Chris Krehmeyer – whose organization is pushing for the ordinance – said in a telephone interview that the mediation doesn’t guarantee that a foreclosure will stop. But it could slow a foreclosure  down and prevent mistakes from happening. Krehmeyer's group provides counseling to individuals facing foreclosure.

“It’s where the two parties come together and look at the individual situation,” Krehmeyer said. “And then the determination to be made ... is: Did the lender and servicer make a good faith attempt to keep that family in the home? Good-faith attempt is not defined (as) every family gets to stay in the home, regrettably. Good-faith attempt is: Did they look at what the family owed them and what programs are available? And could they within reason keep that family in the home?”

Cathy Vogt, the president of the Mortgage Bankers Association of St. Louis, said she has not seen a specific proposal for St. Louis County. But she added that mediation can have unintended consequences.

For one thing, if the lenders and servicers have to pay for the mediation, those costs could be passed onto consumers, she said. There’s also a logistical problem of bringing in servicers – entities that collect principal and interest of a loan -- to a mediation session. 

“Typically servicing and issues related to collections on mortgages are all done in other cities,” said Vogt, who works at Regions Bank in Ballwin. “Therefore, there would be no way locally for many lenders to have support staff on site to go through this mediation process. And I think that’s why you’re seeing a lot of pushback to that, because there’s no way for lenders to have servicing literally in any city that works through this type of mediation process.

“They’re not going to fly somebody up from Charlotte – from Bank of America, for example – to sit in mediation,” she added. “That’s not to say it’s not a good idea, but physically it’d be very difficult unless part of that mediation process could take place via conference call or something.”

Krehmeyer said nothing in the proposal would disallow that, adding “we’re not trying to punish people by making them fly cross-country.” He also said the costs of mediation – about $500 – is nominal for the larger banks.

“It’s not going to hurt banks that make billions in profits every quarter; I think they’ll be OK,” he said.

Focus shift

Several state legislators introduced bills to offer mediation, effectively transforming Missouri into a judicial state. State Sen. Tim Green’s bill, for instance, would have allowed a homeowner to convert a nonjudicial foreclosure to a judicial one by filing a petition with the circuit court. It would have also required the Division of Finance to establish a foreclosure dispute resolution program. State Rep. Jamilah Nasheed, D-St. Louis, offered up a similar bill.

“These are people who followed the advice of their lenders, who were told they could afford these loans, that they were secure,” Green said in a statement earlier this year. “Then the bottom fell out in 2008, and these families were suddenly at the mercy of economic conditions far out of their control. The banks and lenders who made the loans, who for years recorded billions of dollars of profit off a housing bubble they created, were saved by massive bailouts. And the consumers were left to sink or swim on their own, in a flat-lined economy with stagnant wages.”

Neither bill made any headway during the session.

Vogt said her group opposed turning Missouri into a judicial state. In places like Florida or Illinois, it makes the process take “so long, and therefore the amount of foreclosures just keep building up,” she said.

And Missouri Bankers Association President and CEO Max Cook added that real estate markets in judicial states are facing rocky recoveries.

"When you have that much activity jammed up in the court system, and it can’t be cleared from the inventory, it just continues to depress the real estate market," Cook said. "We firmly believe when you have a problem, it’s best to get it fixed as quickly as possible. And it’s been proven – not just in Missouri, but other places – that non-judicial foreclosure is the best route to take.”

He added, “Mediation would serve as the same type of impediment as judicial foreclosure would be. We would not be in favor of mandatory mediation.”

Krehmeyer said the General Assembly's inaction prompted the group to redirect their focus to the county. He pointed to Providence, Rhode Island, a municipality in a non-judicial state that’s adopted a similar program, as a precedent.

“In a perfect world, sure we’d love to do at the state Capitol and have it be for the entire state," he said. "Our belief was that in the politics of today, we have a long ways to go before the folks in Jefferson City will be ready to pass something like this.... It’s something that we didn’t want to wait on.”

Slow pace?

But not everybody is pleased with the legislative trajectory of the ordinance, which hasn’t been introduced to the council for consideration.

Susan Buerkle of Metropolitan Congregations United – an organization that’s strongly supported mediation – said during the council’s forum Tuesday that her group has received assurances since August that Erby’s ordinance was on the legislative horizon.

“We have been assured that its first reading at a council meeting is just around the corner,” Buerkle said. “It has proven to be a very large corner.”

The bill’s delay, she said, comes at the expense of homeowners who could have benefited from mediation.

“This bill has been bouncing back and forth for too long. Does anybody even care about St. Louis County families being put out of their homes?” Buerkle asked. “The foreclosure crisis is not going away. It is expected to be part of the financial and real estate landscape for several more years. We have been waiting nine months. And nine months is plenty of time to fine-tune and approve drafts of any legislation. It’s time – past time – to bring this legislation to a vote.”

St. Louis County Council Chairman Michael O’Mara, D-Florissant, told Buerkle that the bill’s delay can be attributed in part to waiting on the General Assembly.

“We were told to wait for the state, and now you’re throwing jabs at us like we’re sitting on something,” O’Mara said.

Krehmeyer said that setting up an entirely new program requires a lot of work – and time.

“We’re in the final stages in making sure we have the right process, the right paperwork, the right documentation in place in all the county departments, as well as [making sure] that the third-party mediators are ready to go when the legislation gets through the official county council process,” he said.

Cook, who hasn't seen specifics of the St. Louis County proposal, said that the county may not have the legal authority to implement mediation.

“I’m not even sure such a proposal is permissible in the state of Missouri,” Cook said. “And the activities, rules, regs and laws pertaining to the banking industry by statute I believe can only be promulgated by the state legislature, not by municipalities or counties or other entities.

"Sometimes things appear and sound to be kind of great ideas," he added. "But in practicality, they don't work. The system generally works best when you let it work naturally. And so I am suggesting a move (for) mandatory mediation or judicial foreclosure would be a mistake."

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