CFED Scorecard

CFED Assets & Opportunity Scorecard

Housing & Homeownership
Foreclosure Regulations
Overview

In 2012, 49 state attorneys general and the federal government reached a historic settlement with the five largest loan servicers, known as the National Mortgage Settlement. The settlement implemented reforms to end reckless and fraudulent servicer practices, gave more homeowners the chance at a loan modification and provided standards for communicating with borrowers about preventing foreclosure. Because states have exclusive control over foreclosure laws, they are in a strong position to mitigate the impact of foreclosures.

What States Can Do

States can adopt policies and programs that prevent unnecessary foreclosures from occurring and can protect homeowners during the foreclosure process. 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 general mortgage servicing conduct and practices related to borrowers at risk of foreclosure.

Strength of State Policies: Foreclosure Regulations

Are foreclosures reviewed in presence of neutral third party? 1Does state regulate mortgage servicers? 6
StateThird-party
review?
Do homeowners
have access to
judicial review? 2
Does the state offer an
automatic, low-cost
mediation program? 3 4 5
Mortgage servicer
regulation?
Type of regulation
Alabama No No
Alaska No No
Arizona No No
Arkansas No No General servicing protections
California 7 No No General servicing protections
Colorado 8 Yes No Servicing protections specific to
loss mitigation
Connecticut Yes Yes
Delaware 1 Yes Yes Servicing protections specific to
loss mitigation
District of Columbia No No
Florida 9 Yes No
Georgia No No
Hawaii No No General servicing protections;
servicing protections specific to
loss mitigation
Idaho No No
Illinois Yes No Servicing protections specific to
loss mitigation
Indiana Yes No
Iowa Yes No
Kansas Yes No
Kentucky Yes No
Louisiana Yes No
Maine Yes Yes General servicing protections
Maryland 10 Yes Yes Servicing protections specific to
loss mitigation
Massachusetts No No General servicing protections
Michigan 7 11 No No
Minnesota 12 No No Servicing protections specific to
loss mitigation
Mississippi No No
Missouri No No
Montana No No General servicing protections;
servicing protections specific to
loss mitigation
Nebraska No No General servicing protections
Nevada No No Servicing protections specific to
loss mitigation
New Hampshire No No
New Jersey Yes No
New Mexico No No
New York Yes Yes General servicing protections;
servicing protections specific to
loss mitigation
North Carolina 13 No No General servicing protections;
servicing protections specific to
loss mitigation
North Dakota Yes No
Ohio Yes No
Oklahoma 8 Yes No
Oregon 7 14 No No General servicing protections
Pennsylvania Yes No
Rhode Island No No
South Carolina Yes No General servicing protections
South Dakota Yes No
Tennessee No No
Texas No No
Utah No No
Vermont Yes No General servicing protections
Virginia No No
Washington No No General servicing protections
West Virginia No No
Wisconsin Yes No
Wyoming No No

Notes on the Data

1. States receive credit for offering third party review of foreclosures if they offer either a judicial review process or an automatic, affordable foreclosure mediation program. States do not receive credit for third-party review for offering opt-in mediation programs.

2. Foreclosing a Dream: State Laws Deprive Homeowners of Basic Protections, (Boston, MA: National Consumer Law Center, 2009). Accessed July 23, 2015.

3. 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 August 2013 with Alon Cohen from the Center for American Progress.

4. "Summary of Programs," National Consumer Law Center, 2011. Accessed September 1, 2011.

5. The following states did not receive credit for having an automatic mediation program because they have opt-in programs: 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.

6. Mortgage servicer regulation data received from the Center for Responsible Lending originally in October 2011 and updated in August 2014. States receive credit for regulating mortgage servicers if they provide substantive consumer protections directly related to mortgage servicing. These protections may include loss mitigation, dual tracking restrictions and/or codified homeowner outreach procedures. A state does not receive credit for solely requiring mortgage servicers to be licensed or registered.

7. This state has a negotiation program, rather than a mediation program, which has no requirement of a third party mediator.

8. This state does not have a required judicial foreclosure system, but borrowers have relatively easy access to judicial foreclosure review.

9. In December 2011, Florida shut down its automatic mediation program.

10. 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. According to the National Consumer Law Center, Maryland's most commom method of foreclosure is power of sale with court supervision, which is non-judicial review.

11. 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.

12. While Minnesota is a non-judicial foreclosure state, a 2013 law provides that violation of new loss mitigation requirements or new dual tracking prohibitions give rise to a cause of action to seek a court order to halt or set aside the foreclosure sale.

13. Though North Carolina doesn't require third-party foreclosure review, the state does offer the opportunity for a hearing before the Clerk of Court.

14. Oregon does not have an automatic mediation program, but the state's negotiation 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".

How States Are Assessed

States receive credit for offering third party review of foreclosures if they offer either a judicial review process or an automatic, affordable foreclosure mediation program. States do not receive credit for third-party review for offering opt-in mediation programs. States receive credit for regulating mortgage servicers if they provide substantive consumer protections directly related to mortgage servicing. These protections may include loss mitigation, dual tracking restrictions and/or codified homeowner outreach procedures.

What States Have Done

Twenty-two states require homeowners in jeopardy of foreclosure to have their situations reviewed in the presence of a neutral third party. Twenty-two states allow homeowners access to judicial review, while five states offer automatic mediation. Nineteen states have adopted some form of mortgage servicer regulation.

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.

Case Studies

Since 2007, CFED has provided case studies that capture detailed stories of noteworthy state policy changes.  Although the specific policies featured in theScorecard have changed over the years, these case studies still serve as instructive lessons drawn from both policy victories and defeats. 

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.

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.

 


1 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.

Acknowledgements

CFED thanks Diane Standaert and Brandon Coleman from the Center for Responsible Lending for their input and expertise on this policy issue.

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