Karen Tokarz, JD, dispute resolution expert and professor of law at Washington University in St. Louis, says that criticisms about foreclosure mediation programs – currently under review by St. Louis County, St. Louis City, and other cities and states across of the country – are not supported by research and appear to be based on misunderstandings of the process.
In a recent St. Louis Post-Dispatch column, Tokarz, director of the director of the Negotiation and Dispute Resolution Program at the WUSTL School of Law, and Todd Swanstrom, the Des Lee professor of community collaboration and public policy administration at the University of Missouri St. Louis Public Policy Research Center, discuss the foreclosure mediation process and the costs of the process.
“Foreclosure mediation actually saves lenders money well beyond the cost of the program. Lenders typically take a bath when they foreclose on a loan. Loss severities on prime loans have been estimated at 50 percent. Part of this is due to servicer fees, legal fees, sales commissions, maintenance expenses and missed mortgage payments. Houses are often vandalized when they lie vacant. According to national studies, homes going through foreclosure sell for 28 percent less than identical homes that have not gone through foreclosure, depress surrounding property values and cost municipalities approximately $20,000 per foreclosure for increased municipal services.
“If foreclosure mediation results in even a modest number of agreements in which families save their homes and the lenders avoid big losses, foreclosure mediation will more than pay for itself.
“But, the reader may ask, if modifying loans can save lenders so much money, why don’t they already do it? Many servicers simply lack the administrative capacity, expertise, and/or negotiating authority necessary to execute viable loan modifications. Mediation will provide them with an incentive to beef up their capacity. And servicers (who service the loan but often do not own it), often make as much money from a foreclosure as they do from a loan modification. By putting the interest of the lenders at the forefront, mediation actually will incentivize more loan modifications.”