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Reduce Home Foreclosures

Strategies Success Stories

What Can Policymakers Do?

A number of states are taking action led at times by legislation and judicial action. In some states, foreclosure proceedings are primarily managed by the court system, and in others the process is governed only by state statutes. Regardless of these policy differences, however, the following options are available to all states:

  • Require mediation in foreclosures. Foreclosure mediation can enhance communication between borrowers and lenders, expand borrowers’ knowledge and protection by including a professional arbiter (such as a judge, attorney, or other third party), and improve transparency and oversight of foreclosure transactions. Maine, Nevada, and New Jersey have established mandatory foreclosure mediation programs, and approximately 75 percent of participants in Connecticut's mandatory mediation program were able to reach a resolution and avoid foreclosure.
  • Create a moratorium on foreclosures, or extend timeline. By freezing or delaying foreclosures, states can provide borrowers and lenders with additional time to explore restructuring options, including accessing new market products and federal assistance that may be delayed due to the high demand on servicers. In 2008, Maryland extended the minimum length of foreclosure proceedings from 15 to 150 days and provided homeowners with more time and notice before the home sale.
  • Enact protections against predatory mortgage lending. States can prohibit lending practices that result in the loss of home equity by unsuspecting consumers. These practices include negative amortization, prepayment penalties, credit insurance financing, home loan refinancing to the detriment of the consumer, high interest rates not justified by risk factors, and excessive foreclosures. The most effective state policies are those that include specific restrictions on unfair practices that supplement restrictions included in federal law. In 2008, Kentucky passed legislation that established protections including: banning actions to improperly influence a real estate appraisal, banning prepayment penalties on some loans and limiting them on others, restricting fees on mortgage loans, prohibiting lenders from allowing borrowers to make payments applied only to interest and not to the principal; and require lenders to verify a borrower’s ability to repay the loan.
  • Provide counseling and financial assistance. For families in danger of foreclosure, states can provide foreclosure counseling assistance, legal aid, and financial assistance. Arizona is one of many states that have established a foreclosure prevention hotline, and the Oregon Homeownership Stabilization Initiative has provided over 6,000 residents with mortgage payment, loan preservation, and loan refinancing assistance since 2010.