AG proposes mediation before foreclosure
By Martiga Lohn
ST. PAUL — Minnesota Attorney General Lori Swanson outlined a plan Thursday to force mortgage lenders to negotiate with homeowners before foreclosing on their homes.
With an anticipated 36,000 Minnesota homeowners facing foreclosure in 2009, Swanson said she hopes lawmakers will approve the "Homeowner-Lender Mediation Act" in the upcoming legislative session. She said it’s modeled on the Farmer-Lender Mediation Act that helped save family farms during the 1980s.
"Minnesota was the beacon for farmers around this country in the 1980s when we adopted the Farmer-Lender Mediation Act. We could be a leader again this year," she said at a Capitol news conference.
In Olmsted County alone, 62 foreclosure auctions are scheduled from now until the end of 2008.
The plan would require lenders to enter into mandatory mediation with homeowners, where loan terms including interest rate, principal and repayment period would be on the table. Homeowners would have a limited time to start mediation once foreclosure proceedings had begun.
One wrinkle: The proposal would rewrite Minnesota foreclosure law so that only lenders with the authority to renegotiate loans in mediation could pursue foreclosures. Swanson did not spell out how lenders or mortgage servicers would get that authority.
That could be a major issue when it comes to mortgages that have been securitized and sold to multiple investors. Determining ownership of such mortgages is no easy task.
"The securitization system that we have in our country for mortgages has been probably the biggest inhibitor of these workouts happening," said Paul Schuster, president of the Minnesota Mortgage Association.
Schuster said he didn’t want to comment on Swanson’s proposal without studying it. He said his group wants to keep homeowners in affordable homes but has concerns about anything that would raise the cost of borrowing.
Swanson, a Democrat, said she hopes to work with GOP Gov. Tim Pawlenty and lawmakers to pass her proposal. Pawlenty spokesman Brian McClung said the governor already has taken steps to deal with the mortgage crisis and looks forward to working with Swanson on "additional steps that would be helpful."
Homeowners including Lisa Haluptzok of Wyoming, Minn., said mediation saved her home.
Haluptzok, a grocery store clerk, said she and her husband couldn’t keep up with their payments under a fast-rising adjustable rate mortgage. They called Swanson’s office and got into voluntary mediation with their lender, knocking down monthly payments that had jumped to $2,600 back to the original level of $1,700.
"We would have lost our home for sure. Mediation helped us save our home," said Haluptzok, who has three children and has lived in the house for 13 years.