CFED Assets & Opportunity Scorecard
Foreclosure Prevention and Protections
As of November 2011, 2.7 million homeowners have been foreclosed upon, and another 3.6 million are at imminent risk of foreclosure, according to a report from the Center for Responsible Lending. Foreclosure threatens financial security and is a devastating experience for a household’s finances, as homeownership is still the single largest source of equity for American households. In the face of this crisis, some of those problems have been addressed: high-risk mortgage products are generally unavailable, and predatory mortgage lending has been reined in. However, foreclosures continue to occur with little scrutiny, and homeowners and entire communities are left with few tools to recover. To address these issues, states can adopt policies and programs that prevent unnecessary foreclosures from occurring and protect homeowners during the foreclosure process. They can also help those who have lost their homes recover after a foreclosure and can stabilize communities after properties have been vacated.
CFED evaluated the strength of each state’s policies to protect homeowners from foreclosure against the four criteria described in the Elements of a Strong Policy tab. The table below shows which criteria each state met.
CFED uses the following icons to denote the strength of state policies:
Strength of State Policies: Foreclosure Prevention and Protections
|Are foreclosures reviewed in presence of neutral third party? (states must meet only one to receive credit)|
|State||Do homeowners have access to judicial review? 1||Does the state offer an automatic, low-cost mediation program? 2, 3, 4||Does the state regulate mortgage servicers? 5||Has the state abolished or limited deficiency judgments? 1||Does the state enable land banking? 6||Rating|
|Alaska||No||No||No||Yes (abolished)||No 7|
|Arkansas||No||No||Yes (general servicing protections)||Yes (limited)||No|
|California||No||No 8||Yes||Yes (abolished)||No 7|
|Colorado||Yes 9||No||No||Yes (limited)||No|
|Delaware||Yes||No||Yes (servicing protections specific to loss mitigation)||No||No|
|District of Columbia||No||No||No 10||No||No|
|Florida||Yes||No 11||No||Yes (limited)||No|
|Georgia||No||No||No||Yes (limited)||Yes 12|
|Hawaii||No||No||Yes (general servicing protections; servicing protections specific to loss mitigation)||Yes (abolished)||No|
|Maine||Yes||Yes||Yes (general servicing protections)||Yes (limited)||No|
|Maryland||No||Yes 13||Yes (servicing protections specific to loss mitigation)||No||Yes|
|Massachusetts||No||No||Yes (general servicing protections)||No||No|
|Michigan||No 14||No 8||No||Yes (limited)||Yes|
|Montana||No||No||Yes (general servicing protections; servicing protections specific to loss mitigation)||Yes (abolished)||No 7|
|Nebraska||No||No||Yes (general servicing protections)||Yes (limited)||Yes|
|Nevada||No||No||No||Yes (abolished) 15||No|
|New Jersey||Yes||No||No||Yes (limited)||No|
|New Mexico||No||No||No||Yes (limited)||No|
|New York||Yes||Yes||Yes (general servicing protections; servicing protections specific to loss mitigation)||Yes (limited)||Yes 16|
|North Carolina||No 17||No||Yes (general servicing protections; servicing protections specific to loss mitigation)||Yes (limited)||No|
|North Dakota||Yes||No||No||Yes (abolished)||No|
|Oklahoma||Yes 9||No||No||Yes (abolished)||No|
|Oregon||No||No 8, 18||Yes (general servicing protections)||Yes (abolished)||No|
|South Carolina||Yes||No||Yes (general servicing protections)||Yes (limited)||No|
|South Dakota||Yes 9||No||No||Yes (limited)||No|
|Tennessee||No||No||No 10||Yes (limited) 19||No|
|Vermont||Yes||No||Yes (general servicing protections)||Yes (limited)||No|
|Washington||No||No||Yes (general servicing protections)||Yes (abolished)||No|
1. John Rao and Geoff Walsh, Foreclosing a Dream: State Laws Deprive Homeowners of Basic Protections, (Boston, MA: National Consumer Law Center, 2009). Updated data on deficiency judgments were provided through conversations in August 2012 with Geoff Walsh at the National Consumer Law Center.
2. Alon Cohen and Andrew Jakabovics, Now We're Talking: A Look at Current State-Based Foreclosure Mediation Programs and How to Bring Them to Scale, (Washington, DC: Center for American Progress, 2010). Updated data on mediation programs were provided through conversations in May 2012 with Alon Cohen from the Center for American Progress.
3. National Consumer Law Center, "Summary of Programs," National Consumer Law Center, www.nclc.org/images/pdf/foreclosure_mortgage/mediation/summary-of-programs.pdf (Accessed September 1, 2011).
4. The following states did not receive credit for having an automatic mediation program because they have opt-in programs: Delaware, Hawaii, Illinois, Indiana, Kentucky, Maine, Nevada, New Hampshire, New Jersey, New Mexico, Ohio, Washington and Wisconsin. The following states did not receive credit for state-level programs because they do not have programs at all the state's jurisdictions: Illinois, Kentucky, New Mexico, Ohio, Pennsylvania, Rhode Island, Washington and Wisconsin.
5. Mortgage servicer regulation data received from the Center for Responsible Lending in October 2011. A state does not receive credit for requiring mortgage servicers to be licensed or registered. To receive credit, a state must provide substantive consumer protections directly related to mortgage servicing. Updated data on servicer regulations were provided through conversations in May 2012 with Uriah King from the Center for Responsible Lending.
6. Frank Alexander, Land Banks and Land Banking, (Washington, DC: Center for Community Progress, 2010). Updated data on land banking legislation were provided through conversations in May and June 2012 with Sara Toering from the Center for Community Progress.
7. This state had statutory references to land banking but did not have specific language that granted municipalities the ability to establish a land bank.
8. This state has a negotiation program, rather than a mediation program, which has no requirement of a third party mediator.
9. This state does not have a required judicial foreclosure system, but borrowers have relatively easy access to judicial foreclosure review.
10. This state has regulations governing servicers but with no specific language for mortgage servicers.
11. In December 2011, Florida shut down its automatic mediation program.
12. In May 2012, Georgia approved legislation to significantly update its land banking statute to create a self-financing mechanism and allow for the ability to form regional land banks.
13. Though Maryland does not have a formal automatic mediation program, homeowners automatically undergo a review of their financial situation by the foreclosing party to see if the homeowner should have a loan modification. Homeowners then can opt into the mediation program. For more information, see the case study on Maryland's advocacy efforts in the resource guide.
14. In May 2009, Michigan enacted laws to provide residents protections from foreclosure. The law requires that homeowners are sent a notice of foreclosure and a referral to a housing counselor for help with negotiating a loan modification. There is also the opportunity to go before a judge if the homeowner and the modification negotiations qualify.
15. Nevada prohibited deficiency judgments for loans made after October 1, 2009 to purchase primary residences.
16. On July 29, 2011, New York passed legislation allowing for the creation of land banks at the municipal level.
17. There is the opportunity for a hearing before the Clerk of Court.
18. Oregon's mediation program ensures homeowners on the non-judicial foreclosure track receive two notices about the program, follow-up phone calls and additional outreach. Outreach efforts are a part of the contract with the mediation service provider, and the state has funded these efforts. Additionally, the program is available to homeowners who are not in foreclosure but are "at-risk".
19. In 2011, Tennessee modified Code 35-5-117 to limit deficiency judgments by requiring fair market value assessments.
WHAT STATES CAN DO
Media exposure of irresponsible mortgage servicing practices has spurred political momentum, at both the federal and state level, to reform the industry:1 In April 2012, 49 state attorneys general and the federal government reached an historic settlement with the five largest loan servicers, known as the National Mortgage Settlement.2 The settlement implements reforms that attempt to end reckless and fraudulent servicer practices, gives more homeowners the chance at a loan modification and provides standards for communicating with borrowers about preventing foreclosure.3 Because states have exclusive control over foreclosure laws, they are in a strong position to mitigate the impact of the foreclosure crisis.4,5 States can adopt policies and programs that prevent unnecessary foreclosures from occurring and can protect homeowners during the foreclosure process. They can also help those who have lost their homes recover after a foreclosure and can stabilize communities after properties have been vacated.
To prevent unnecessary foreclosures, states can require that homeowners receive a review in the presence of a neutral third party and the opportunity to appeal their case. To ensure that families are afforded critical protections during the foreclosure process, states can regulate mortgage servicers, who carry out foreclosures.6 After foreclosure, states can help homeowners recover financially by limiting the ability of lenders to sue homeowners in order to recoup remaining mortgage debt. States can facilitate the stabilization of communities struggling with an abundance of vacant properties by establishing land banks to take over and redevelop properties for productive use.
WHAT STATES HAVE DONE
Overall, 44 states have taken some action to address the foreclosure crisis, but many states have room for improvement in developing a comprehensive strategy to prevent foreclosure and protect homeowners. Twenty-one states require homeowners in jeopardy of foreclosure to have their situations reviewed in the presence of a neutral third party, and 15 states have some form of mortgage servicer regulation. Thirty-six states have abolished or limited deficiency judgments, and 13 states have passed laws that enable municipalities to establish land banks.
1 Government action to address the foreclosure crisis has been widespread and varied. In addition to the National Mortgage Settlement, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the now-defunct Office of Thrift Supervision initiated formal enforcement measures in April 2011 against eight national bank mortgage servicers and two third-party servicer providers for unsafe and unsound mortgage servicing and foreclosure practices. The subsequent federal consent order requires the nation’s largest mortgage servicers – Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank and Wells Fargo – to provide a single point of contact for borrowers, as well as not allowing homeowners to be foreclosed upon while a loan modification is being pursued. In a separate case, the 50 state attorneys general, the Justice Department and several federal agencies opened an investigation in October 2010 also focused on mortgage servicing practices. This investigation was sparked by the ‘robo-signing’ scandal, which revealed servicers from a few large national banks illegally signing thousands of foreclosure affidavits without reviewing the contents of the documents.
2 The settlement reconciles charges that servicers engaged in abusive practices and improperly foreclosed on thousands of homeowners. In addition to servicer reforms, the settlement provides $25 billion worth of direct payments and credits to borrowers.
3 “Summary of National Mortgage Settlement,” (Durham, NC: Center for Responsible Lending, 2012), http://www.responsiblelending.org/mortgage-lending/policy-legislation/states/Summary-of-AG-Settlement-3-12-12.pdf.
4 Sara Weed and Sonia Garrison, Foreclosure as a Last Resort: States Can Stabilize the Housing Market by Preventing Unnecessary Foreclosures, (Durham, NC: Center for Responsible Lending, 2010), http://www.responsiblelending.org/mortgage-lending/policy-legislation/states/20101021-State-Loss-Mit-Brief-Final.pdf.
5 Although states have exclusive control over the foreclosure process, including regulation of servicers at state-chartered banks, the same is not true for nationally-chartered banks, which are regulated at the federal level. New York is the first state to directly address this by issuing regulations for all servicers within state borders, regardless of their charter.
6 The 2012 National Mortgage Settlement laid out stricter servicing standards for the five servicers involved in the settlement. The Consumer Financial Protection Bureau also plans to issue national servicing standards in the near future, which will help clarify state and federal roles regulating mortgage servicers.
ELEMENTS OF A STRONG POLICY
Based on the expertise of the Center for Responsible Lending, Center for American Progress, National Consumer Law Center and the Center for Community Progress, CFED considers a state’s foreclosure policy strong if it meets the following criteria:
1. Preventing foreclosures: Does the state require review in the presence of a neutral third party? An effective strategy for preventing unnecessary foreclosures is to ensure that the process takes place with the presence of a neutral third party educated in the state’s foreclosure laws. This review happens automatically in ‘judicial foreclosure’ states, where the foreclosure process is overseen by a judge in court. However, in ‘non-judicial foreclosure’ states, where foreclosure takes place without automatic court involvement, states can establish programs that require a mediator to oversee the process.1 Strong mediation programs automatically schedule homeowners for mediation instead of requiring homeowners to request it and do not require homeowners to bear the full cost of mediation.2
2. Protecting homeowners during the foreclosure process: Does the state regulate mortgage servicers? To protect homeowners during the foreclosure process, states should regulate general mortgage servicing conduct and practices related to borrowers at risk of foreclosure. These regulations can take a number of forms and address a wide range of practices, including establishing a duty of good faith and fair dealing, restrictions on fees and charges, protections regarding the allocation of payments, or a requirement to disclose the financial analysis used to decide whether to let the borrower go into foreclosure (commonly known as an NPV test).3
3. Helping borrowers recover after a foreclosure: Does the state ensure foreclosed upon homeowners are not burdened with insurmountable debt? A deficiency judgment is a court orderthat makes a homeowner personally liable for unpaid debt. In the case of a foreclosure, if a property does not sell for a price that covers the value of the mortgage loan, a homeowner may be issued a deficiency judgment. Homeowners face foreclosure because of financial distress; allowing mortgage holders to pursue deficiency judgments can create an overwhelming debt obligation from which a homeowner can never recover. States should abolish deficiency judgments or limit the amount or circumstances for which a mortgage holder can pursue them.
4. Stabilizing communities after properties have been vacated: Does the state enable strong management and redevelopment of foreclosed properties? When a property is vacant for a prolonged period of time, the surrounding community can be negatively affected; the vacant property can create fire and safety hazards, or invite vandalism and crime. This neighborhood blight can lead to declining adjacent property values and the loss of property tax revenue. States can minimize blight through strong management of foreclosed properties. One management strategy is to create a landbank – a governmental or quasi-governmental entity that can acquire, hold and manage foreclosed properties and return them to productive use. Although land banks are established at the local level, states must enact legislation that enables their creation via local government.
To see how each state’s policy stacks up against these criteria, see the State Data tab above.
1 It would be difficult for a state to change from a non-judicial to a judicial foreclosure process, as it requires an often expensive overhaul of the judicial system to accommodate a more time- and cost-intensive process.
2 According to a June 2010 report from the Center for American Progress, mediation programs with automatic scheduling have significantly higher participation rates than opt-in programs; consistently, 70-75% of homeowners participating in automatically-scheduled mediation reach settlement. Opt-in mediation programs see a wider range of results, with a settlement rate as low as 3% for participating homeowners in New York.
3 A net present value (NPV) analysis is a test that servicers perform to decide whether it is more profitable to modify a loan and accept lower payments over time or to let the borrower go into foreclosure. Requiring these analyses to be made public means a homeowner has evidence to present in a court appeal if a mortgage servicer is not acting in good faith.
MAKING THE CASE
Six Guidelines for an Effective Campaign1
1. Find your allies. When it comes to policy campaigns, there is strength in numbers. There are a wide range of stakeholders with a strong interest in limiting the impact of the foreclosure crisis. If a coalition does not already exist, think creatively about potential partners to approach, such as bar associations, housing advocates, labor organizations or realtor associations. Identify the organizations that are already engaged, as well as other organizations that may be valuable allies. Be prepared to help potential allies understand the issues, why they should be vested in seeking change and how they can contribute.
2. Consider a state task force. Consider convening a statewide foreclosure prevention task force with representation from a diverse set of stakeholders, such as government officials, community-based nonprofits, real estate agents and financial institutions. This strategy can raise the visibility of foreclosure problems in the state and lead to key recommendations for policy change. For example, because MCRC had a seat at the table for Maryland’s Task Force on Foreclosure Law, they directly informed the recommendations the task force made, which were later translated into reforms to Maryland’s foreclosure process.
3. Identify priorities and strategize accordingly. The nature and extent of the foreclosure crisis varies across states, and it is likely that some areas of a state may be hit harder than others. Given the variety of approaches to deal with foreclosures, it is crucial to identify and prioritize the strategies that will be most effective in a specific state. This prioritization should involve evaluating how the foreclosure crisis has affected the state thus far and the strength of the state’s housing market. It is important to listen to the feedback from groups on the ground and then find data that corroborates their experiences. This approach can, for example, shed light on whether the state should prioritize foreclosure prevention or assisting homeowners after foreclosure and community stabilization. Identifying priorities also has the benefit of keeping a clear and focused message.
4. Take the temperature of the political climate in your state. Take advantage of political momentum around strategies to deal with foreclosure, but be cognizant that states are facing extremely challenging fiscal climates. Pick your battles, or prioritize low-cost approaches that are more feasible and easily attained. In Maryland, MCRC understood that in 2011, they would have to tone down their next advocacy campaign and make a more subtle push that was under the radar, given the fatigue many lawmakers were feeling towards the reform.
5. Recruit influential champions. Early on, build relationships with strong champions within the legislature or the governor’s administration who are interested in foreclosure reform. With the media attention around the foreclosure crisis and the federal efforts to alleviate its impact, there is certain to be a strong proponent of foreclosure reform at the state level. For example, in New York, NYRL used the reputation they built over the past decade as a strong advocate for consumer rights to enlist the support of an engaged Banking Department Superintendent and his staff. Through this close relationship, they educated the department about servicing abuse and helped inform the most comprehensive set of mortgage servicing regulations in the country.
6. Plan the next step. Policy change is often slow and hard-earned, but when it is achieved, it is important to prepare for the next step. That next step may involve growing the movement, focusing on the next reform on the list of priorities, or assessing the policy change’s implementation. In New York, with servicing regulations now in effect, advocates have turned their attention to ensuring that the regulations are being properly enforced across the board so that homeowners can be assured of a fair foreclosure process.
1 CFED thanks Maya Brennan and Laura Williams of the Center for Housing Policy for their contributions to this section.
For each edition of the Assets & Opportunity Scorecard since 2007, CFED has worked with experts in the field to capture detailed stories of noteworthy state policy changes—both policy victories and instructive defeats. These case studies appear in the Resource Guides for each policy priority.
New York State Banking Department Adopts Groundbreaking Mortgage Servicer Regulations (published October 2011)
The need for regulation and accountability of mortgage servicers was dramatically illustrated by the ‘robosigning’ scandal in October 2010 and resulting lawsuit from the 50 state attorneys general. That scandal also catalyzed the New York State Banking Department to adopt what is widely regarded as the strongest set of regulations of mortgage servicers in the country. Click here to read more.
An Ongoing Partnership between Maryland Policymakers and Advocates (published October 2011)
Like many states, Maryland has experienced a staggering number of foreclosures in recent years. With the help of a governor who has been a strong ally to homeowners and consumer advocates on this issue, the Maryland Consumer Rights Coalition (MCRC) helped improve the state’s foreclosure process, create a mortgage foreclosure mediation program and win new protections for Maryland homeowners. Click here to read more.
Related Policy: Predatory Mortgage Lending
Although predatory mortgage lending is not a Policy Priority in the current Scorecard, it was in prior years and relates to foreclosure prevention and protections. In 2009, CFED published a case study on predatory mortgage lending.
A Pioneering Campaign in New Mexico (published September 2009)
As more mortgage loans were originated by brokers instead of bankers, states including New Mexico became vulnerable to predatory lending practices that flourished in the rapidly growing subprime lending market...Using its reputation as a grassroots organization that promotes resident-driven social transformation and public policy development, and its unique relationships with other organizations, USBC-FLC engaged a network of 16 partners to launch the Campaign to Stop Predatory Lending. The campaign’s mission: to work as a broad-based coalition to end predatory lending, racial segregation and discriminatory practices by traditional lending institutions. Click here to read more.
For a two-page overview of foreclosure prevention and protections, download CFED’s Policy Brief.
For an in-depth compendium of analysis, research, and resources on foreclosure prevention and protections, download CFED’s Resource Guide.
- Center for American Progress
- Center for Community Progress
- Center for Housing Policy
- Center for Responsible Lending
- National Consumer Law Center
- National Governors Association
- U.S. Department of Housing and Urban Development