In Sacramento last week, legislators revealed that they are considering a mediation program to help borrowers work out home loan modifications. The mediation program is patterned after similar programs that a dozen other states have adopted.
Many borrowers who are looking for options to avoid foreclosure are having trouble contacting their lenders. The program would force lenders to sit down with borrowers and attempt to come up with solutions other than foreclosure.
As part of the program, a borrower could request a mediation with the lender. The lender would be legally required to participate in discussions with the borrower. To finance the cost of hiring a mediator, both parties would pay a fee. In Nevada, the fee is $200 each.
Banks have argued that a mediation program is unnecessary because the federal Making Home Affordable program is effective. Indeed, President Obama's program has led to hundreds of thousands of loan modifications. Still, California legislators are unnerved by the number of stories they hear of borrowers' inability to reach lenders.
Legislators are still in the exploratory phase, but at the very least the prospect of a mandatory mediation program should prompt more banks to return borrowers' calls. With plenty of people still struggling with their mortgages, the economy will continue to suffer if more foreclosures are not averted.
