Fighting to Keep Rhode Islanders in their Homes: Foreclosure Mediation Programs

Fighting to Keep Rhode Islanders in their Homes: Foreclosure Mediation Programs

"The mere act of sitting the homeowner down with someone who has the authority to modify the mortgage or agree to a common sense settlement often is enough to avoid a costly and painful foreclosure."

-Senator Sheldon Whitehouse, February 1, 2011, while chairing a U.S. Senate Judiciary Committee hearing on the benefits of Foreclosure Mediation Programs

Experts Testify on Success of Foreclosure Mediation Programs at Whitehouse Hearing

February 1, 2011

Washington, DC – Bankruptcy Court foreclosure mediation programs can help struggling homeowners cut through the red tape as they seek a mortgage modification to stay in their homes, according to testimony heard today in a U.S. Senate Judiciary Committee hearing chaired by U.S. Senator Sheldon Whitehouse (D-RI). Starting in 2009, the Bankruptcy Courts for the Districts of Rhode Island and New York began offering pre-trial foreclosure mediations. While no settlement is required, the program brings together the homeowner and their mortgage company for a good faith negotiation.

In Whitehouse’s opening statement, he pointed out that while these programs will not save every home, “they can help countless frustrated homeowners cut through the bureaucratic nightmare and get answers to their modification requests.” He continued, “Because foreclosures can trash the value of a house, loss mitigation programs can save investors money too.”

Larry Britt, a Rhode Island homeowner, testified about his struggle to obtain a mortgage modification through the existing Home Affordable Modification Program (HAMP) – illustrating the need for a less burdensome alternative. “When I started the process in March of 2009, I had never been late paying any bills to any creditors and my credit score was near perfect,” said Britt. “Since entering into a modification process…the bank has ruined my credit rating and has been the major contributor of uncertainty about my future.”

The Honorable Robert Drain, U.S. Bankruptcy Court Judge for the Southern District of New York, testified about the success of the foreclosure mediation program in his district. “About one half of the Loss Mitigations that have concluded have resulted in some form of an agreement – usually a loan modification reducing the interest rate and stretching out payments – that has meant that the home remains occupied or that it is turned over in a way beneficial to both sides.”

Unfortunately, a loan servicer for Deutsche Bank recently challenged the legal authority of the Rhode Island Bankruptcy Court to run their mediation program. The Court ruled last week against Deutsche Bank, but with the threat of future appeals and ongoing litigation, Senator Whitehouse has introduced the Limiting Investor and Homeowner Loss in Foreclosure Act (S. 222) to support these successful programs. The bill would clarify the authority of bankruptcy courts to run modification programs.

Other witnesses today included John Rao, an attorney at the National Consumer Law Center, Dr. Anthony B. Sanders, a Professor and Senior Scholar at the Mercatus Center, George Mason University, and Andrew M. Grossman, a Visiting Legal Fellow at The Heritage Foundation.

At a field hearing in October 2010, Whitehouse heard from homeowners who found our current mortgage modification process to be overly burdensome and ineffective, and learned about the benefits of the Rhode Island Bankruptcy Court’s foreclosure mediation program.