Some state foreclosure mediation programs have been very successful, while others have been cancelled because they don’t work, according to a new study from the National Consumer Law Center.

Rebuilding America: How States Can Save Millions of Homes Through Foreclosure Mediation collected data from 19 states that bring financially stressed home owners and lenders together with a mediator to look for a solution to the home owners’ problems.

“Evidence shows that effective foreclosure mediation can keep paying borrowers in their homes for the long term while also saving billions of dollars for taxpayers and investors,” said Geoff Walsh, an attorney at National Consumer Law and author of the report.

The report found:

Foreclosure mediation programs and conferences can be run at little or no cost. Mediation fees average from none to less than $1,000, typically paid by the home owner and/or the mortgage lender. In comparison, investors lost an average $145,000 per home foreclosure in 2008.

Effective mediation programs do not prolong foreclosures. Most mediation programs work within the time frames for existing state laws. In Philadelphia, for example, the typical foreclosure case spent 53 days in a foreclosure conference while the average time frame to complete an uncontested foreclosure was 10 months.

Foreclosure mediation programs connect borrowers with housing counselors. Borrowers who work with a housing counselor are more likely to avoid foreclosure. According to a recent study, 63% of borrowers who obtained modifications with counseling sustained the modifications, while only 8% of borrowers who obtained modifications without counseling sustained them.

Not all foreclosure mediation programs are equal. Florida’s mediation program lacked enforceable standards, did not compel servicers to negotiate in good faith, and had an ineffective outreach component, so many home owners were unaware of it. The state recently suspended the program due to lack of participation. By contrast, New York courts conducted over 80,000 conferences in foreclosure cases. The court imposes sanctions on lenders who don’t follow the conference rules. Connecticut has a similar program and more than 50% of home owners who complete mediations end up with a permanent loan modification.

Policymakers can use mediation programs to help preserve minority home ownership; gains made over the last decade are vanishing. Black and Latino home owners face a doubly high foreclosure rate, even when adjusted for income. Many minority families were initially targeted for unaffordable subprime loans, and are denied loan modifications more often and steered into less affordable non-HAMP loan modifications more frequently than non-minority home owners. Mediation programs provide needed oversight over practices that continue to disproportionately impact minorities.

Source: National Consumer Law Center