The 2013 Legislature faces a buffet of complex tasks — from getting serious about PERS reform to implementing Gov. John Kitzhaber's education and health care overhauls — that will take time to complete.
But those worthwhile endeavors should not overshadow legislation that needs to be addressed immediately to help Oregonians who are struggling. Fixing the mortgage mediation program created on the last day of the 2012 session should be near the top of that list.
Banks have largely shunned the mediation program, which was launched in July, in part because they believe the authorizing bill is unclear and exposes them to liability.
In many ways, the program never had a chance because of an unfortunately timed court ruling. Also in July, the Oregon Court of Appeals ruled in a case filed by borrower Rebecca Niday that a lender must ensure a complete ownership history of a mortgage is filed in county records before it can foreclose outside a courtroom. The decision has restricted lenders' use of Mortgage Electronic Registration Systems, which was created to streamline the mortgage documentation process. Lenders appealed to the Oregon Supreme Court, which heard arguments last week.
A Supreme Court ruling might not come until late in the legislative session. Meanwhile, lenders mostly have shifted from nonjudicial foreclosures to court-supervised foreclosures, which are more costly and time-consuming. It's unclear whether the shift came because of the difficulty meeting document requirements without MERS, because lenders wanted to avoid mediation, or both.
Whatever the reason, the number of court-supervised foreclosures in Oregon has exploded. For example, Washington County recorded 840 judicial foreclosures during the first 11 months of 2012, compared with 199 during all of 2011.
Rather than wait on the court ruling, the Legislature needs to provide clarity for lenders and the thousands of Oregonians who still need help holding onto their homes.
Sens. Brian Boquist, R-Dallas, and Lee Beyer, D-Springfield, plan to introduce legislation to close loopholes in the 2012 bill. Their goal is create a short-term way to establish clear title for foreclosures until the Supreme Court rules on the Niday case. Boquist and Beyer also want to require that lenders offer mediation in judicial foreclosures, something the 2012 bill required only in nonjudicial foreclosures. Their proposal provides a good starting point for discussion.
The Oregon Bankers Association also has a wish list of clarifications for the bill. For the most part they involve two legitimate goals: Make it clear what lenders are required to do, and keep requirements of notification and documentation as simple as possible. Requiring unnecessary paperwork extends the time required to handle a case, whether it ends in loan modification or foreclosure. That benefits no one.
But it's equally important that lenders not use fear of paperwork and/or litigation as an excuse to avoid the often difficult task of finding a solution that works for the lender and borrower. In that regard, it's encouraging that U.S. Bancorp, according to the Oregon Department of Justice, has started using the mediation program for some foreclosures. Until recently, the mediation program had been used primarily by government-backed lenders.
Improvement in the housing market also offers reason for optimism. As home prices continue to rise and fewer homeowners reside in houses worth less than they owe, fewer Oregonians will be at risk of foreclosure. Lenders will be able to focus on making new loans instead of reworking old ones or trying to sell foreclosed properties.
But title questions will linger in Oregon until the Supreme Court rules on MERS. That's why, in addition to cleaning up language in the 2012 bill, the Legislature should at least temporarily extend mediation to judicial foreclosures.
Depending on what the Supreme Court determines on MERS, the Legislature might need to revisit the foreclosure issue later. But to help troubled homeowners and ensure the housing recovery doesn't lose momentum, it needs to repair its 2012 bill as soon as possible.