Federal Reserve Bank of Boston Releases "State Foreclosure Prevention Efforts in New England: Mediation and Assistance"
BOSTON - Foreclosure initiations spiked in all the New England states during the recent economic downtown, ranging from a peak of less than 3.0% of outstanding mortgages in Vermont in 2010 to a peak of 5.5% of outstanding mortgages in Rhode Island in 2009. Across the entire New England region in 2010, more than 7% of all mortgage holders- nearly 133,000 homeowners - were seriously delinquent in making payments. In response, state and local policymakers have created their own foreclosure prevention programs to supplement those available nationwide.
In a new research report by the Federal Reserve Bank of Boston's New England Public Policy Center, "State Foreclosure Prevention Efforts in New England: Mediation and Assistance," Policy Analyst Robert Clifford reviews and analyzes the New England states' foreclosure prevention programs. The report identifies two major prevention strategies: foreclosure mediation programs and financial assistance programs.
The mediation process provides homeowners a channel of communication with their lenders that has been difficult for most to establish on their own. As these programs have yielded results, they have grown in popularity: in 2008 only 5 states had mediation programs; by 2011 21 states had some form of mediation program in place. Five of the six New England states have initiated mediation efforts, while Massachusetts has implemented a program to facilitate two-party negotiations without the additional presence of a neutral mediator.
Financial assistance programs channel aid directly to homeowners who are at risk of foreclosure. Maine and Connecticut are the only New England states offering this type of program.Financial assistance programs channel aid directly to homeowners who are at risk of foreclosure. Maine and Connecticut are the only New England states offering this type of program.
- The successes and obstacles in New England's programs provide key lessons for states looking to create new or modify existing foreclosure prevention efforts, including:
- Intervene early, bringing together homeowners and lenders as soon as a foreclosure complaint is filed or allowing homeowners to apply for financial assistance before their situation becomes dire;
- Maximize participation, perhaps through opt-out provisions, automatic enrollment for homeowners in mediation, or removing unnecessary barriers to qualify for financial assistance;
- Tap existing expertise and resources, taking advantage of the judicial system or state housing finance authorities in the administration of prevention programs;
- Carefully weigh funding strategies, considering adverse incentives, limits on program scale, and availability of federal funding; and
- Collect information and analyze results, using statistics to evaluate program strengths and weaknesses and help build public support for effective strategies.
The complete report, "State Foreclosure Prevention Efforts in New England: Mediation and Assistance" and corresponding multimedia is available at http://www.bostonfed.org/economic/neppc/index.htm