As of July 1, lenders and borrowers have to go through mediation before the lenders can ask judges to foreclose. The requirement, which is mandated by the Florida Supreme Court, covers only homesteaded properties.
The American Arbitration Association runs Broward mediations, while Palm Beach County mediations are handled by the Palm Beach County Bar Association.
Kelley says his clients complain that the banks are unresponsive to their pleas for help. With mediation, the lines of communication are opened because a decision-maker for the bank must be present. In most cases, Kelley said, the borrower leaves the process with some sort of mortgage modification offer.
The problem is that it often doesn’t satisfy the borrower.
He used this hypothetical example: A borrower with a mortgage payment of $2,000 and a 6% interest rate seeks mediation. The bank agrees to cut the rate to 3 or 4%, reducing the monthly payment by $150 to $200. But the borrower was looking to shave $800 a month off his payment.
About the only way to achieve such a sizable reduction is to forgive part of the principal balance on the mortgage. And banks aren’t willing to do that, Kelley said, largely because that would encourage other borrowers to stop paying in hopes of cashing in on a principal reduction.
Bottom line: do banks have an obligation to reduce principal and help end the housing crisis?
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