PHILADELPHIA (Reuters) - A program to avert residential mortgage foreclosures has saved almost 60 percent of its participants from losing their homes in a sheriff’s sale, officials said on Tuesday.
Philadelphia’s Mortgage Foreclosure Diversion Pilot Program, seen as a national model to stem the foreclosure crisis, resulted in 2,776 properties permanently or temporarily saved from sale between its inception in June 2008 and May 31 this year out of 4,690 that were referred to the program, according to new data.
The program, overseen by the Philadelphia Court of Common Pleas, brings together borrowers in mortgage arrears with lenders, judges, housing advocates and attorneys who try to reach an agreement that will allow distressed homeowners to remain in their homes.
Lenders are required to refer foreclosure cases to the program in the hope that a resolution can be found under which owners will resume payments they can afford and lenders will no longer need to dispose of distressed property.
“Everybody wins,” said Christopher DeNardo, an attorney who represents lenders in negotiations that take place weekly in a Philadelphia court room and typically cover around 140 cases. A steering committee consisting of 15-20 stakeholders was initially adversarial but now has a “collegial atmosphere of mutual respect” as all seek a resolution, DeNardo said.
Throughout the U.S. there were 321,480 residential properties, or one in every 398, in some stage of foreclosure in May, the third-highest level on record, according to RealtyTrac.
The Philadelphia program has been cited by Pennsylvania Senator Arlen Specter, who has initiated legislation to replicate it nationwide, and by the U.S. Conference of Mayors, which earlier in June called on states to pass laws requiring mortgage lenders to negotiate with distressed borrowers.
Deserie Jones-Wright, 47, a retired Philadelphia police officer with three children, said she received a foreclosure notice in November 2008 after falling about five months behind in mortgage payments which jumped to $975 a month from $607 on her adjustable-rate loan.
On a police pension of $2,055 a month, she said she couldn’t afford the extra payment, and negotiated a settlement under which she paid a lump sum of $5,700 toward the arrears and now pays $562 a month, allowing her to keep the home.
“At first I just felt like giving up but I worked hard for this home,” Jones-Wright tearfully told about 200 stakeholders in the program at a reception.
Borrowers are typically six months to two years behind in their payments, representing a debt of $20,000 to $100,000, said Kari Samuels, a volunteer attorney who represents homeowners. She said she often tries to reach a settlement by persuading lenders to drop attorneys’ fees or accept reduced arrears in interest charges or late fees.
Borrowers are sometimes the victims of excessive interest rates or other forms of predatory lending, and often do not understand the terms of those loans, Samuels said.
Lenders may seek a settlement by offering to stretch the outstanding mortgage over a longer term, cutting the interest rate, or reducing the principal, she said.
“From the lender’s point of view, it makes a lot more sense to work something out,” Samuels said.
Editing by Jackie Frank