Housing Advocates Seek Foreclosure Options Consumer groups are pushing for stricter oversight when it comes to foreclosures. They say nationwide mediation programs could save thousands of people from losing their homes. 

Housing Advocates Seek Foreclosure Options

Housing Advocates Seek Foreclosure Options

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John and Nancy Longval say they've had a hard time working with their lender, CitiMortgage, on a loan modification. Chris Arnold/NPR hide caption

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Chris Arnold/NPR

John and Nancy Longval say they've had a hard time working with their lender, CitiMortgage, on a loan modification.

Chris Arnold/NPR

Federal and state prosecutors are investigating Bank of America, JPMorgan Chase and other banks over allegedly fraudulent foreclosure documents.

Meanwhile, consumer groups say the banks have been equally sloppy when it comes to helping homeowners avoid foreclosure in the first place. This week, they were in Washington, D.C., pushing for stricter oversight.

Ever since these foreclosure paperwork problems came to light, the banks have said they have not been seizing houses that shouldn't be foreclosed upon. But regulators and housing advocates say that's not true.

"The same companies that are messing up all this paperwork are the same ones who administer the foreclosure prevention programs, and there is lots of evidence that they're messing that up as well," says Mike Calhoun, president of the nonprofit Center for Responsible Lending.

Negotiations With A Lender

In the state of Maine, Nancy and John Longval say they've been having a very hard time working with their lender, CitiMortgage. They say one day they're told they do qualify for help under a government program that would lower their mortgage payments. Then, they're told they don't qualify. The couple says they've faxed in documents supporting their case, but the bank has lost them.

The Longvals, who are now grandparents, bought their house in 2004. They wanted a house with some land around it with space for the whole family. And they appeared able to afford it: They put down 20 percent and paid the mortgage for four years. Then, the recession hit and they both lost work.

The Longvals' housing counselor says they absolutely should qualify for a loan modification to keep their home because they have enough income.

CitiMortgage says it is working with thousands of homeowners to help them stay in their houses. And just about all the major banks have faced similar complaints from homeowners.

New Mediation Programs

As a result of such complaints, the state of Maine started a mandatory mediation program this year. The banks have been ordered to let homeowners sit down with bank representatives who hold the authority to modify loans. Also in the room: the homeowners' housing counselor or lawyer and a mediator.

The idea is that it will make the process more efficient for all parties involved.

The state of Connecticut has a similar mediation effort. "We hear every day about people getting rejected for loan modification programs when they shouldn't be," says Roberta Palmer, who heads up the mediation program for Connecticut's court system.

She says the mediation program is proving to be an effective backstop. Most homeowners facing foreclosure take advantage of the mediation. Palmer says the program is making a huge difference with 63 percent of homeowners getting a loan modification.

Calls For A Nationwide Mediation Program

Calhoun, of the Center for Responsible Lending, agrees. He says this is one of the top priorities for housing advocates right now. And he's been meeting with senior government officials this week to push them to adopt a nationwide mediation requirement prior to foreclosure.

Calhoun says such a requirement could "save tens or hundreds of thousands of people from foreclosure." He adds that if the government-backed mortgage firms Fannie Mae and Freddie Mac required mediation for loans that they guarantee, it would quickly extend this approach across all 50 states.