The Nevada State Legislature recently passed the mortgage mediation law great fanfare. The law was expected to save as many as 17,000 Nevada homeowners from foreclosure. The law, which went into effect July 1st, allows homeowners in default to request a mediation hearing with the lender.
To be eligible a homeowner must have received a notice of default after July 1, 2009. The homeowner must pay a fee of $200 if they request a hearing and the lender is also required to pay a $200 fee. In anticipation of a flood of requests, the state has trained in excess of 100 lawyers and ex-judges to handle the cases.
Where is Everybody?
The official estimates were that between 1,250 and 1,500 homeowners per month would participate in the program. However, after six weeks there have been a total of ten requests. Not ten per day or ten per week, just ten total. That amounts to 1.67 requests per week! How did they get it so wrong?
The fee may have kept some from asking for mediation but $200 isn’t exactly an exorbitant sum. The more likely reason is that no amount of mediation helps someone who has lost a job. If a payment is reduced from an unmanageable figure to a lower, but still unmanageable amount, does it make a difference? People who are significantly underwater, or owe much more than a home is worth, don’t see the benefit of a lower interest rate or more time to pay.
Starting Over
So many people have made a decision to walk away from their obligation and start over. It is happening to so many people that the stigma seems to have disappeared. In the Las Vegas area just about everyone knows someone who is in foreclosure. It is not limited to one income group either, many multi-million dollar homes are being taken back by the banks.
The idea of mandatory mediation may have been a good idea. Why not see if there is a solution to foreclosure? However the Government grossly overestimated the demand for the program. Imagine that, the Government got it wrong.
The government solution to a problem is usually as bad as the problem. – Milton Friedman
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Article Author: Richard WarrenRichard has written 176 articles for us.
Visit Richard's Website: http://www.rehabberseye.com
Joshua Dorkin
{ 3 comments… read them below or add one }
I have heard of other government programs like that. Where they spend millions and millions of dollars that end up going nowhere. Poor planning, poor marketing, poor leadership for those programs.
-Tyler
You are correct that mediation is no panacea, still utilization of foreclosure mediation is much greater in CT where they report today 1700 foreclosures avoided. See http://www.hartfordbusiness.com/news9913.html
Still, mediation requires two parties able to reasonably reach an agreement. If this capacity is lacking on both sides of the table, no measure of mediation can solve this problem.
Jim Melamed, CEO
Mediate.com
I think you hit the nail on the head in the second half of the article. Borrowers don’t want to keep dumping money into an upside down investment. NV, Las Vegas in general is a town built on instant gratification and not long term planning. People bought homes hoping to use their equity like a checking account and then when the opposite happened everyone reversed course and wanted to dump their homes.
I worked in Loan Modification for all of a week, before realizing people who could pay still wanted a modification because they just didn’t want to continue paying into an upside down property.
Anyways- great post- and for anyone curious about other NV mortgage regulations here is a good resource:
http://www.bankapedia.com/mortgage-encyclopedia/state-mortgage-laws/620-nevada-mortgage-laws