Mass. lawmakers debate foreclosure mediation

Fitchburg Mayor Lisa A. Wong has seen 538 homes in her city go into foreclosure since 2010. She was at the Statehouse yesterday asking lawmakers to require banks to undertake mediation over possible loan modifications before families lose their homes.

“What's going on right now is we are having one of the largest foreclosure crises in any of our living histories. This is unacceptable,” Ms. Wong said at a rally on the Statehouse steps in support of the Senate version of a foreclosure prevention bill that would impose mandatory mediation talks in advance of foreclosure action by banks.

The bill is currently before a six-member House-Senate conference committee that is negotiating final terms for possible enactment before the July 31 end of formal sessions for the year.

Both the House and Senate versions would require banks to make loan modifications when calculations show it would be beneficial to the bank. The Senate version would also require banks to enter into a mediation process at the bank's expense. Twenty-four other states have put a variety of foreclosure mediation processes in place.

Ms. Wong said foreclosures are stripping away major benefits of homeownership for significant numbers of families and hurting the economic strength of communities across the state.

“Homeownership leads to stable families, which leads to stable homes, which leads to stable communities and, dare I say, leads to a stable financial system,” she said, all of which are in the best interest of banks.

“It helps with people building equity in their homes, allowing them to make investments, start businesses and send their kids to college,” Ms. Wong said.

Sen. Harriette L. Chandler, D-Worcester, who backed the foreclosure bill in the Senate, argued that the foreclosure crisis goes beyond individual homeowners and families.

She said Worcester County leads the state in foreclosures, and the mediation process is needed to also halt an erosion of property values and reductions in property tax collections from foreclosures.

Currently, Ms. Wong said, with no mandatory mediation, homeowners are often dealing with faceless bankers, lack of response, piles of paperwork and bad outcomes.

“You've got real people on one side pushing for homeownership, pushing for community investment, and on the other side you have faceless mounds of paperwork. We need to force the faceless to the table,” Ms. Wong said.

The Massachusetts Bankers Association has opposed the legislation, saying it could end up lengthening the foreclosure process and increase mortgage risks for banks, which, in turn, could tighten credit for homebuyers. In a strongly-worded commentary, Daniel J. Forte, president of the association, said the Senate version of the bill could damage the housing market recovery.

“It has the potential to slow down the entire real estate market, something no one wants to see,” Mr. Forte said.

But backers of the legislation dispute those concerns, arguing that social and economic benefits far outweigh those risks.

Ms. Wong said it is the large national banks — doing an estimated 85 percent of foreclosures in the state — that have done little to meet with homeowners and undertake alternatives to foreclosure such as mortgage modifications, even though banks can come out ahead financially.

“So you are going to foreclose on a home in Fitchburg and you are going to sell it for 40 grand,” Ms. Wong said of the options facing banks when a mortgage goes unpaid. “Well, if you get to the table, we can keep the family in that home and we can maybe get you back twice that, or three times that or four times that,” she said.

“That is beneficial to us and it is beneficial to the banks. This is a crisis affecting every city and town. Banks, we are here to help.”

Other housing advocates said yesterday that studies have shown that children in families facing foreclosure suffer from the stresses of homelessness. They noted that currently increasing numbers of seniors are facing foreclosures. They said homeowners at risk of foreclosure often lack access to authorized bank representatives, and deal with extensive financial document filings and extended waiting periods without resolution.

The bills: the House and Senate versions would require banks to make loan modifications when calculations show it would be beneficial to the bank. The Senate version: The Senate version would also require banks to enter into a mediation process at the bank's expense. The momentum: Twenty-four other states have put a variety of foreclosure mediation processes in place.