October 26, 2009

Los Angeles Mayor Antonio Villaraigosa and California Assembly Speaker Karen Bass recently announced the introduction of the “Monitored Mortgage Workout (MMW) Program” bill that would mandate mediation between borrowers and lenders before a foreclosure can proceed.

The proposed negotiations would provide borrowers with a vital source of leverage that would dramatically reduce the number of foreclosures.

“Too many homeowners have lost their homes because they lacked the tools to navigate the legal landscape of lending laws,” Villaraigosa said. “The Monitored Mortgage Workout Program provides borrowers with a vital source of leverage in their negotiations with banks. Sitting at the same table, both parties have an incentive to find a solution that avoids foreclosure; this benefits the borrower, the bank, and our communities.”

The proposed bill would help implement President Obama’s plan by creating a MMW Program. A state appointed monitor would ensure that lenders or their servicers consider, evaluate and enter into loan modifications.

In circumstances where it is not financially feasible for the homeowner to stay in their home, mediation allows for fair and equal negotiation and the increased likelihood that individuals and families will be afforded a graceful exit and avoid foreclosure.

Successful foreclosure workout programs in other states and cities are in place. In New Jersey, for example, in more than 50 percent of the completed monitored loan workout cases, families were able to remain in their homes. Connecticut’s mediation program has helped over 2,000 borrowers stay in their homes – a 60 percent success rate – since it began in July 2008 as a voluntary program. Mandatory workout programs have recently begun in other states such as Nevada and Maine.

The MMW Program would do the following:

• Any borrower who receives a Notice of Default (NOD) is eligible to participate in a MMW Program administered by the California Housing Finance Authority (CHFA).

• The borrower must communicate to the CHFA his or her intention to participate in the plan within 30 days of the NOD.

• If a borrower elects to participate, a Monitor is appointed to oversee and if necessary, direct, the loan modification process.

• Once the MMW Program has been initiated, no further steps may be taken to foreclose until the MMW Program has been completed.

• The Monitor shall assist the parties in assessing the affordability of any loan modification and analyzing the net present value economic effect on the lender of modification (versus foreclosure).

• If the parties are unable to modify the loan bilaterally, the Monitor shall prepare a reasonable loan modification proposal.

  • If the lender/servicer rejects the proposal or has acted in bad faith during negotiations as determined by the Monitor, the borrower may seek to enforce the Monitor’s proposed loan modification in an expedited court action.

• If the borrower rejects the proposal or has acted in bad faith as determined by the Monitor, the foreclosure process will resume pursuant to existing state law.