Philadelphia Gives Homeowners a way to Stay in their Homes
City leaders in Philadelphia watched in 2008 as residential foreclosures were rising every month and were starting to take a substantial toll on the communities where the homes were located. Some communities in lower income areas went from a few foreclosures scattered randomly across the city to whole blocks of residents losing their homes. Something had to be done and in March 2008 city leaders led an effort that resulted in Philadelphia’s Residential Mortgage Foreclosure Diversion Pilot program.
The Philadelphia program is similar to the plan passed by the Obama Administration which gives cash subsidies to mortgage companies as an inducement to participate in the program and to accept lower payments. The Obama administration plan so far has been plagued by complaints of bureaucratic confusion and the indifference of mortgage companies. The Philadelphia program has one major difference to the Obama administration plan: the mortgage companies have no choice but to participate.
In Philadelphia, when homeowners receive legal default notices from their mortgage companies, the court system schedules a conciliation hearing. Mortgage companies have to attend the hearing and negotiate in good faith or they cannot proceed with a sheriff’s sale. The Philadelphia program has been held up as a model for the industry and cities as diverse as Pittsburgh, Chicago, and Louisville have reviewed the program and have adopted similar efforts.
The program has one downside which is similar to the Obama plan in that almost all of the loans that have been modified have been altered on a trial basis thus requiring homeowners to re-apply for an extension of the terms after only a few months.
On the surface this is an excellent program that will go a long way to stemming the flood of foreclosures that are plaguing Philadelphia’s communities. To maintain the programs successful track record of helping homeowners, the organizers should mandate some follow up actions by program officials to ensure mortgage loans have been modified and they have been modified to reflect long term and permanent changes for those that are most in need of mortgage payment relief.
