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�� The Aftereffects In the section titled ���When Paying Your Mortgage Is a Struggle��� on the Federal Trade Commission���s (FTC) website, consumers will find a statement from the agency that reads: ���If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy.��� So, are borrowers utilizing the bankruptcy system to force their servicers��� hands and get the loan modification they want? Weatherford contends a borrower doesn���t go into bankruptcy to ���force��� a loan mod out of their servicer. The difference, she says, is that a bankruptcy filing requires the borrower to get their finances in order and get their debt-toincome (DTI) levels in line with levels that are sustainable. Ford says she and her colleagues in Michigan are seeing a marked increase in modifications in bankruptcy. In Florida, Powrozek says principal reductions are on the rise and a lot of the time, those reductions include partial or entire writeoffs of any second mortgages. That���s a trend that emerged last summer, according to Powrozek. He says he���s even witnessed a few instances of reductions totaling more than six figures. Weatherford affirms Powrozek���s observations. In her middle Florida district, she said she���s ���definitely seeing more principal reductions because of the National Mortgage Settlement and also seeing more second mortgages stripped away.��� Currently in Florida, if there���s a second mortgage and it has no equity, it can be stripped off automatically, she explained. There have also been cases where the borrower gets into mediation and realizes they can���t afford their house, and these instances��� maybe 1 to 2 percent of cases heard���are typically resolved with a short sale. ���It���s all a math problem,��� Weatherford said. ���Either the math works or it doesn���t.��� INDUSTRY INSIGHT POINT��� COUNTERPOINT Mediation in the state���s bankruptcy courts, however, is faring much better. According to Weatherford, more than 1,700 cases have been filed over the life of the Orlando district���s program. Seventy-three percent of those cases ended successfully with a loan modification or other form of workout, Weatherford said, citing numbers from the detailed records she keeps to measure the success of the program and its impact. For the month of January 2013, the bankruptcy mediation program experienced a success rate of 86 percent. ���It works,��� Weatherford said. All parties have a clear understanding of what���s required of them from the onset, she says. There are specific, well-defined expectations of what creditors��� counsel and the borrower have to do and what supporting documentation each has evaluation aspects of the mediation process by allowing the debtor to upload the necessary documentation via an online portal. BEST PRACTICES The Better Fit to provide, and Weatherford believes that���s one of the keys to the program���s success. The cost of the mediation is the responsibility of the borrower. Weatherford says because the borrower has to pay for the mediator, it ensures the borrower has ���skin in the game��� and becomes a more active participant in trying to reach a resolution. In addition, creditors have the added assurance of a ���good faith��� payment from the borrower, she notes, because the bankruptcy trustee is already holding five to six months��� payments on behalf of the borrower. Weatherford says ideally the servicer should be the one encouraging mediation, and servicers should use that mediation time to ���check the math��� and if necessary, explain why the borrower doesn���t qualify for a loan modification and offer other ���graceful exit��� options that are available. ���Our [program] allows the lender and counsel to be on the phone with the borrower, borrower���s counsel, and a mediator,��� Weatherford said. ���The biggest mistake I see on the part of servicers is not having an underwriter on the phone. Also, not acknowledging when the borrower���s paperwork is received and that they���ve looked at it, and then letting the borrower know if they need anything else��� to complete the evaluation for a modification. Weatherford says she thinks a court-ordered bankruptcy mediation program would be successful in other jurisdictions as well. She says the southern district of Florida goes live with its own program on April 1, and Florida���s northern district has plans to adopt a similar program. Outside her home state, Weatherford referenced mediation programs put in place by the bankruptcy courts in Michigan, Rhode Island, and the southern district of New York. McCormick says the Chapter 13 trustee in Atlanta is looking at putting a mediation program into effect, and the northern district of Mississippi currently employs an ���unofficial��� mediation program. Powrozek says in southern Florida, they���ve initiated a pilot that is intended to streamline the information-gathering and COVER STORY The old model was to get the stay lifted and move on with the foreclosure, Weatherford says, but that���s changed���banks don���t want to take back any more properties. The crisis has stretched bank-owned inventories and carrying costs to the point that it���s more economical to find a way to keep borrowers in their homes, even if it means reducing the principal or expunging secondary liens, Weatherford contends. Orlando���s first order for a bankruptcy mediation session was issued in April 2010. Interestingly enough, just as Weatherford was getting her program off the ground, questions and concerns began to surface about the viability of Florida���s mandatory statewide mediation program established in December 2009, By December 2011, the Florida Supreme Court issued a decree terminating the statewide program designed to bring delinquent borrowers and servicers face-to-face at the negotiating table. Supreme Court Chief Justice Charles Canady cited the state mediation program���s lack of success in resolving foreclosure disputes between lenders and borrowers as the reason for its dissolution. ���The court has reviewed the reports on the program and determined it cannot justify continuation of the program,��� Justice Canady said. Local media pegged the statewide program���s success rate for resolving delinquencies and disputes between lenders and homeowners at about 4 percent. ���It was just a mess,��� Powrozek said of the state-mandated program. ���It was always a game of catch-up [and] speculation is that there just wasn���t any ���skin in the game��� on behalf of the debtors.��� VISIT US ONLINE @ DSNEWS.COM 51

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