The D.C. Council passed an emergency bill requiring mortgage lenders to enter a 90-day mediation before foreclosing on a home.
Introduced by Ward 4 Councilwoman Muriel Bowser, the bill is designed to force lenders to provide homeowners with alternatives to losing their homes. Bowser said it was necessary that the council act quickly to slow down the number of residents being kicked out of their houses because they can't pay off their loans.
More than 1,300 houses in the District had foreclosure filings in September, according to online foreclosure-tracking firm RealtyTrac.
The bill passed unanimously on Tuesday is similar to a law enacted in Maryland earlier this year, but Maryland's law has not had the effect lawmakers had hoped.
"Mediation gives the homeowner a neutral, open opportunity to find a way to keep their home," Bowser told The Washington Examiner.
"Foreclosure isn't always the best option. Sometimes the loan can be modified."
The bill requires lenders to send homeowners a form to opt in or out of mediation when the lender sends the foreclosure notification. Homeowners then have 30 days to send it back. If borrowers choose to enter mediation, they will have an additional 90 days to hammer out a new deal. Homeowners currently have 30 days to agree on options other than foreclosure with lenders.
In the last three months of 2009, half of the 680,000 homeowners who were able to modify their loans through the federal loan modification program redefaulted in six months, according to a report from the Office of Thrift Supervision.
It will be up to the District's Department of Insurance, Securities and Banking to make sure lenders are following the rules, and to set the fee that mediators can collect. The fee can be no more than $1,000, of which homeowners would have to pay $50, although that can be waived.
Homeowners in Maryland have been slow to take up the option their state's lawmakers afforded them when passing a similar measure in the spring. The Washington Examiner reported that, as of last month, 130 borrowers had opted for mediation, making it unlikely that the state will reach the 4,360 it expected by July 2011.
Critics also say the mediation processes could slow down the economy's recovery.
"The longer this [foreclosure crisis] lingers, the harder it is going to be before a full recovery," Dan Caplan, a senior mortgage consultant for Monument Bank in Bethesda, said recently.
"We need to get through this mess and be done with it -- put it behind us -- rather than drag it out."
Examiner Staff Writer Hayley Peterson contributed to this report.