Today’s New York Times includes an article discussing—in less than glowing terms—Nevada’s foreclosure mediation program. The article suggests that the program is slanted toward lenders, because it seems to help relatively few homeowners reach permanent modifications allowing them to retain their houses. I’m not an expert on foreclosure mediation—Andrea and others who run those programs certainly know them better than I do—but my sense is that the article misstates much about foreclosure mediation. For example, it states that the Nevada mediation program “is superior to the White House’s Home Affordable Modification program.” That makes no sense. HAMP is not a mediation program—it is a law that gives homeowners the right to a temporary mortgage modification. The Nevada mediation program, like others in states around the country, is just a procedural mechanism that creates space for lenders and homeowners to work out the modifications that HAMP provides for. More importantly, there is nothing about the mediation program that harms homeowners. If the mediation program doesn’t work, that’s because lenders have little incentive and no legal requirement to do anything beyond what HAMP requires. From what I gather from talking to our bankruptcy gurus, there are several reasons for the lack of an economic incentive. First, lenders don’t want to make modifications permanent because at that point they have to recognize their losses. Further, secondary lenders can resist any proposed modification, and because they are unlikely to get paid no matter what happens, they have an incentive to simply muck up the process and delay the inevitable. The mediation program is probably better than nothing, if only because it increases the likelihood that homeowners will actually get what HAMP entitles them to. And in at least some cases, it could do more.

I’d be interested to hear if those more closely involved have thoughts.