Foreclosure mediation angers bankers, pleases housing advocates | Pound Ridge Realtor

The mortgage industry is in an uproar over a proposal that would require banks to participate in professional mediation before foreclosing on St. Louis County homeowners.

Bankers predict big problems if the St. Louis County Council approves the measure, which they say would burden lenders, discourage mortgage lending and drive up interest rates.

“You would have to do something entirely different when servicing properties in St. Louis County. If every municipality tried to impose their own guidelines, imagine the havoc,” said Keith Thornburg, general counsel of the Missouri Bankers Association.“It’s very chilling for home buyers trying to get a loan.”

Baloney, say mediation advocates.

“I don’t see any data anywhere in the country that supports that,” said Karen Tokarz, a law professor who studies mediation at Washington University.

Indeed, such mediation is required with foreclosures in parts of more than 20 states, including Illinois, without reports of problems. And a local mediation program, right across the river in Madison County, has been running without major issue since June of last year, supporters say.

Mediation seeks to offer a last chance for a homeowner to stave off foreclosure, which advocates say benefits both borrower and lender.

Still, it remains unclear how many of St. Louis County’s homeowners facing foreclosure might participate or benefit from the proposal. Under the proposed plan, homeowners facing foreclosure could opt for a mediator – with the bank paying the bill. A professional would try to work out a compromise – most often a payment reduction – to keep the borrower at home.

Banks wouldn’t have to agree to a deal. They could still foreclose. But they’d face a $1,000 fine if they refuse to mediate or if the mediator felt they acted in bad faith.

In Madison County, the program has put a small dent in foreclosures. Linda Jun, who ran the program until last week, said only 10 to 20 percent of borrowers opt for mediation, although it’s offered to everyone in foreclosure.

Of the 291 who signed up, 61 homeowners reached a deal with their creditors so far, according to court figures. Of those, all but two kept their homes. About 100 cases are still working through the system, so the number of averted foreclosures could increase.

Madison County’s experience seems on par with other mediation programs around the country.

The St. Louis County Council passed its own mediation plan by 5-to-2 on a preliminary test vote on Aug. 14; a final vote is expected on Tuesday. But bankers are mobilizing and threatening lawsuits if it wins final approval.

The bill was introduced by Councilwoman Hazel Erby, a Democrat who represents some inner-ring suburbs where foreclosure rates are high. As of July, 805 homes in St. Louis County were in some phase of foreclosure, according to figures from RealtyTrac.