A report released today by the National Consumer Law Center examining foreclosure mediation programs believes states, including Indiana, need to make substantial changes before the programs can be effective.

In "State and Local Foreclosure Mediation Programs: Can They Save Homes?" the NCLC looked at 25 programs in 14 states, all which started in 2008 or 2009. Senate Enrolled Act 492, which took effect July 1, requires lenders to inform mortgage holders about their right to participate in a settlement conference if the lender files an action to foreclose and if the borrower meets certain criteria, such as assuring that the home is the borrower's primary residence.

According to the report, court-supervised mediation programs will be more beneficial to homeowners if the lender is required to give the homeowner a document showing its affordable loan calculation; the lender produces specified documents, such as loan originating documents; the lender complies with all mediation obligations in good faith and establishes proof of the mortgage holder's standing and status as the real party in interest; and the lender is required to document its considered specific alternatives to foreclosure.

SEA 492, now Indiana Code Section 32-30-10.5, requires lenders to give homeowners notice they have 30 days after the notice is served to schedule the settlement conference; a conference must be conducted no later than 60 days after the date of notice. The act requires the lender to provide certain documents to engage in good faith negotiations.

According to the report, there are several flaws in Indiana's newly implemented settlement mediation program. It lacks formal systems for tracking most basic data on outcomes of mediations or conferences. The program requires homeowners to opt-in within 30 days and the NCLC believes this may exclude some homeowners who don't understand the opt-in procedures. Indiana's program also doesn't involve direct court supervision.

The law center would like to see direct court supervision over the enforcement of lender obligations to mediate. It also wants states to make participation by homeowners automatic; allow mediation requests to be made up until the time of the foreclosure sale; stay all proceedings until it's determined the lender complied in good faith with program obligations; provide funding for outreach, housing counselors, and qualified counsel for homeowners; prohibit lenders from shifting its attorneys' fees and costs to the homeowner; and require junior lien holders to be notified and allowed to participate in the mediation process.

"Under most of the existing foreclosure mediation programs, servicers have all the discretion and homeowners have little or no power," study author and NCLC staff attorney Geoffrey Walsh said in a statement. "If the programs continue to demand little or no accountability from servicers, they will likely go the way of federal efforts to control foreclosures that have failed as a result of relying on voluntary compliance by the lending industry."

NCLC is a nonprofit organization that works with and offers training to legal service, government, private attorneys, and community groups and organizations representing low-income families. It seeks marketplace justice on behalf of low-income and vulnerable Americans.