Housing and consumer advocates are eagerly counting down to July 11.
That is the day the provisions of the state’s new mandatory mediation law, passed by the Oregon Legislature earlier this year, go into effect.
The law requires banks to enter into mediation with homeowners 60 days before their home is foreclosed upon. Homeowners at risk of foreclosure — people, for instance, who have not paid their mortgages for a few months — are also eligible for mediation.
Mediation enables a representative of the bank and the homeowner to sit down for a one-on-one conversation regarding the homeowner’s situation. The hope, from consumer advocate’s point of view, is that the mediation process will reveal at least one option allowing the homeowner to stay in their home.
Oregon posted its highest foreclosure rate ever in the first quarter of 2012, at 3.86 percent. This translates to a total of 23,335 loans in the foreclosure process in Oregon.
The program would not be possible without the neary $30 million Oregon received in April as the result of the national mortgage settlement agreement reached between state attorneys general and the five major financial institutions deemed most responsible for the nation’s foreclosure crisis — Bank of America, Wells Fargo, JP Morgan Chase, Ally Financial, and Citigroup.
A fraction of those dollars — $7.6 million — was allocated in late May by the Legislature’s Emergency Board, a joint board of senators and representatives that meet when the Legislature is not in session.
Approximately $3.9 million will be used to start the mediation program, which will be overseen by the Department of Justice. The rest was given to Oregon’s Community and Housing Services agency to increase legal assistance to homeowners, expand the state’s network of housing counselors, and fund outreach efforts to find homeowners facing foreclosure who are eligible for mediation and other services.
But what about the rest of the $22 million now padding the state’s General Fund?
It’s expected that the Emergency Board will allocate more of the settlement money to foreclosure prevention programs when the board meets again in September and December. The amount will be contingent upon reports the board will receive from the Oregon Housing and Community Services Department and the Department of Justice.
Already, the spending on foreclosure prevention programs is considered unprecedented in Oregon. “It’s giving people access to tools and resources they haven’t had,” says Angela Martin, the executive director of Economic Fairness Oregon.
To consumer advocates, it’s a boon that they hope will finally stem the number of foreclosures in the state.
“By any standard, it’s a fair bit of money for Oregon,” says Janet Byrd, the executive director of the nonprofit housing advocacy organization, Neighborhood Partnerships. “(The mediation program) will lend some clarity to the foreclosure process. The settlement money will mean that the programs get started soon, and the system is more complete and responsive.”
The nationwide mortgage settlement, in which Oregon was one of 49 participating states, totaled $25 billion, and included a mix of payments for various actions. It included $2.5 billion that went directly to the states, with suggested guidelines that the funds were intended to have some application to preventing foreclosures, prosecuting fraud and compensating states for the costs caused by “alleged unlawful conduct” of the big banks.
But those are only suggested guidelines.
According to a report released in May by Enterprise Community Partners, a national, nonprofit, affordable-housing financing organization, many states are diverting the money to filling their own stressed-out coffers.
The report, which looks at the ongoing decisions in each state on how to apply their settlement money, shows that at least six states aren’t dedicating any of the money to housing, many have split the money, and most states, including Oregon, are still in the process of deciding what to do with it.
In Missouri, the state legislature there voted to use its $40 million to offset planned cuts to higher education.
Out of Nebraska’s $8.4 million in settlement monies, only $1 million went into the state’s Affordable Housing Trust Fund. The rest went into the state’s cash reserves.
The legislature in Virginia is proposing using the bulk of it’s $66 million settlement allocation to offset reductions in state aid to local governments, and cover a 3 percent pay raise for state employees.
In Georgia, according to the report, none of the $99 million of its settlement was allocated for housing. All of it went into two programs that distributes grants for economic development across the state.
In South Carolina, House Republicans voted to give all of its $31 million to the state’s Commerce Department to create incentives for companies to relocate to there; Democrats want some money used for foreclosure assistance programs. The attorney general there is calling for the money to be used for shelters for battered women and homeless veterans.
Wisconsin applied $26 million of its $30 million in settlement funds to plug it’s budget hole, with the rest allocated to investigate mortgage fraud. Likewise, Utah lawmakers voted to keep the bulk of its settlement in its general fund, allocating less than $4 million out of $22 million for homeless and mortgage fraud programs.
Those states that have committed to housing programs have applied the funds toward mediation services, like Oregon, down payment assistance and Legal Aid programs.
In Oregon, there are strong opinions about how the money should be spent, and what programs it should be spent on. Some view the $7.6 million allocation as tepid and are wary of support on the part of lawmakers for a new and untested statewide program.
“Everyone is being cautious and conservative because there are a lot of unknowns,” Martin says.
It’s not yet clear, she says, exactly how the mediation program is going to work, or how many people will participate in it.
Ben Pray is the policy advisor and communications manager with the Oregon Housing and Community Services, which manages state housing funds and will operate the mediation program. OHCS intends to have the mediation program up and running by mid-July. But Pray says he does not expect the program to be fully operational and robust until this fall.
The Emergency Board’s allocation of the settlement dollars will pay for the mediation program for the next three years. Advocates expect that the program will not need continued funding from settlement funds after that. One of the law’s provisions creates a funding stream for the mediation program by collecting a $100 fee when a notice of default on mortgage payments is filed. The collected fees are expected to make the program self-sufficient within a few years.
(The total cost of mediation services is $400 for each homeowner, who will pay half the cost).
Critical to ensuring that people participate in the mediation program, advocates say, is an effective outreach campaign that can reach out to as many homeowners as possible. An effective outreach program, Martin and Byrd say, would include canvassers going door to door to reach homeowners, phone banking, community forums, and other activities to reach as many homeowners as possible before it is too late to prevent their foreclosure from happening.
The Emergency Board allocated $450,000 for outreach efforts. The original request was double that number — $900,000. Martin credits the reduction with a sour taste left in the mouths of legislators from prior, unsuccessful outreach efforts.
Effectively convincing homeowners to participate in mediation and helping them overcome “five years of learned distrust for foreclosure relief,” she says, will be an uphill battle.
Also critical to the mediation program’s success is how knowledgeable homeowners will be about their situation, and how ready they will be to go to bat with their lender. That, Pray and others say, is where housing counselors come in — people, certified by the federal government’s Housing and Urban Development department, that typically work for non-profit agencies and sit down with homeowners one-on-one to talk about the homeowner’s particular situation, and what options are available to them. They can also help homeowners fill out paperwork and do whatever else to prepare them for a mediation session with the bank.
“It’s not the easiest system for people to navigate on their own,” Byrd says, speaking to the critical role counselors can play.
Currently, there are approximately 20 housing counselors in the entire state. Eastern and rural parts of Oregon don’t have any. “The demand for those services is high,” Pray says. “It can be a month before you can talk to someone.”
Pray says the Oregon Community and Housing Services department expects to at least double the number of housing counselors with the Emergency Board’s allocation.
A question still unanswered is how much of the remaining settlement money will be used to directly assist homeowners — help them pay back payments, reduce their principal balance, or other direct forms of financial assistance.
“That is still something up for discussion,” Pray says.
“None of those ideas have been thoroughly vetted,” among advocates or other groups, Byrd says.
“It’s up to us to convince legislators,” Byrd says.
Martin admits it’s tempting to provide direct assistance to homeowners. But she also says the money would not go as far as creating a program that can help many, with long-term impacts. “Do you help 30 families, or do you help everyone?” she says.
Martin also hopes that the Legislature will continue using the settlement dollars to fund foreclosure prevention programs. If the $7.6 million is all that will be spent, it’s “not what I would call sufficient,” she says. “Oregon would be in the column of ‘didn’t do a great job.’”
But there’s another pot of money that could be used for direct assistance — almost $180 million left from the Troubled Asset Relief Program (TARP) bailout in late 2009. According to Pray, that money is earmarked for direct assistance to homeowners.
And there’s yet a third large amount of money that has gotten even less attention. As part of the national mortgage settlement agreement, Oregon loan services have access to $250 million dollars that can be used for direct assistance to homeowners. But, Pray says, that money is in the hands of the five major banks, which get to decide how and when the money is spent.
“That money is a little nebulous right now about how it’s going to work,” Pray says. “It’s to be determined.”