In its last session, the Oregon Legislature – faced with more than 120,000 Oregon homeowners being "underwater" on their mortgages – came up with a good idea for helping them keep their homes. It passed a bill requiring lenders to enter into mediation with borrowers who were at risk of foreclosure and try to work out a way to avoid it.
There was only one thing wrong with the bill: To get it passed, its supporters had to pull its teeth. Although the law makes it mandatory for a bank to enter into mediation if the homeowner requests it, there's no penalty if the bank doesn't.
The result has been predictable: Banks are simply ignoring the law. Since it went into effect in July, according to state officials, homeowners have filed more than 150 requests with private lenders for mediation. Not one of them has actually led to a mediation process. In fact, the banks haven't even bothered to reply.
The law also provides that once a home actually is in an out-of-court foreclosure process, the bank can't auction it off unless it participates in mediation. The banks have skated around this part of the law by switching to court-supervised foreclosures, which are slower and costlier.
Jonathan Conant, manager of the mediation program, told a legislative committee in August that all of the state's five biggest mortgage lenders – Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and Ally Financial – have said they aren't willing to participate in the program "under any circumstances."
"They just don't want to play," said Conant.
The banks claim they don't want to play because they're not completely clear about what the rules of the game are. A July Court of Appeals decision and new rules from Fannie Mae and Freddie Mac have clouded the picture, they say.
Well, maybe – but we're skeptical. The alleged confusion hasn't stopped two government lending agencies – the Oregon Department of Veterans Affairs and Oregon Housing and Community Services – from agreeing to mediation.
The foreclosure epidemic continues to inflict hardships on families who lose their homes – and more than that, it cripples the whole economy. The large supply of foreclosed and about-to-be-foreclosed homes depresses the real estate market, which in turn depresses the construction industry. People who lose the equity in their homes lose an important part of their financial security. People who can't sell their homes can't move to other communities to take advantage of new jobs or other opportunities.
The banks created the real estate bubble and bust, and the foreclosure epidemic that followed, by inflating home appraisals and giving mortgages to people they damn well knew couldn't handle them. They bear the main responsibility for making the current economic mess, and they need to be made to help clean it up.
When it goes into its next session in February, the legislature has to fix the mediation law by putting some teeth back into it. In the meantime, the banks get THE BOOT for arrogantly flipping off the legislature and people of Oregon.