Foreclosure Fairness Program Annual Report on Program Performance — Report to the Legislature (December 2020)
Summary
Foreclosure Fairness Program Annual Report on Program Performance, December 2020, a report to the Legislature from the Washington State Department of Commerce. The report provides Foreclosure Fairness Program (FFP) data for fiscal year 2020 to satisfy the statutory reporting requirement, and acknowledges the impact of the COVID-19 pandemic on the state economy. The Program Outcomes section contains tables reflecting the FFP outcomes, and the Challenges section addresses significant issues related to funding, reporting and the possibility of increased beneficiary exemptions. The summary of issues states that a stakeholder group, which includes Commerce, is considering recommending that the Legislature change the trigger for beneficiary fees back to issuances of Notice of Default.
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“Foreclosure Fairness Program Annual Report on Program Performance — Report to the Legislature (December 2020).”
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Foreclosure Fairness Program
ANNUAL REPORT ON PROGRAM PERFORMANCE PER RCW 61.24.163
COMMUNITY ECONOMIC
OPPORTUNITIES December 2020
FORECLOSURE FAIRNESS
PROGRAM REPORT TO THE LEGISLATURE
Lisa Brown, Director
2.3
Acknowledgments
Washington State Department of Commerce
Diane Klontz, assistant director, Community Services and Housing Division
Cecil Daniels, managing director, Community Economic Opportunities Unit
Nathan Peppin, program manager, Foreclosure Fairness Program
Zoë Myers, program coordinator, Foreclosure Fairness Program
Washington State Housing Finance Commission
Steve Walker, executive director
Washington State Office of the Attorney General
Bob Ferguson, attorney general
Office of Civil Legal Aid
James Bamberger, director
Special thanks to the Dispute Resolution Centers,
Northwest Justice Project, mediators, attorneys
and housing counselors who collaborate with the
Department of Commerce to implement and deliver
the Foreclosure Fairness Program
Washington State Department of Commerce
Nathan Peppin
nathan.peppin@commerce.wa.gov
FORECLOSURE FAIRNESS PROGRAM
1011 Plum St. SE
P.O. Box 42525
Olympia, WA 98504-2525
www.commerce.wa.gov
For people with disabilities, this report is available
on request in other formats. To submit a request,
please call 360.725.4000 (TTY 360.586.0772)
FORECLOSURE FAIRNESS REPORT 2020
Table of Contents
Executive Summary ..................................................................................................................................... 2
Program Outcomes ...................................................................................................................................... 4
Challenges .................................................................................................................................................. 8
Recommendations ..................................................................................................................................... 11
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 1
Executive Summary
Overview
This report provides Foreclosure Fairness Program (FFP) data to satisfy RCW 61.24.163 and additional
programmatic context and background. The full text of the legislative reporting requirements is below:
18) Beginning December 1, 2012, and every year thereafter, the department shall report annually to the Legislature
on:
(a) The performance of the program, including the numbers of borrowers who are referred to mediation by a housing
counselor or attorney;
(b) The results of the mediation program, including the number of mediations requested by housing counselors and
attorneys, the number of certifications of good faith issued, the number of borrowers and beneficiaries who failed to
mediate in good faith, and the reasons for the failure to mediate in good faith, if known, the numbers of loans
restructured or modified, the change in the borrower's monthly payment for principal and interest and the number of
principal write-downs and interest rate reductions, and, to the extent practical, the number of borrowers who report a
default within a year of restructuring or modification;
(c) The information received by housing counselors regarding outcomes of foreclosures; and
(d) Any recommendations for changes to the statutes regarding the mediation program.
Although the data provided in this report reflects program activity for fiscal year 2020, the report narrative and
recommendations also acknowledge the impact of the COVID-19 pandemic on the state economy and thus on
the foreclosure arena going forward. The Program Outcomes section contains several tables reflecting the
FFP outcomes, which respond directly to the statutory language. The Challenges section addresses significant
issues related to funding, reporting and the possibility of increased beneficiary exemptions.
Table 1: Locations of Annual Reporting Requirements in this Report
Subsection Proviso Location in Report
"The performance of the program, including the numbers of
(a) borrowers who are referred to mediation by a housing Table 2
counselor or attorney."
"The results of the mediation program, including the number of
(b) Tables 4, 5 and 6
mediations requested by housing counselors and attorneys."
"The number of certifications of good faith issued, the number
of borrowers and beneficiaries who failed to mediate in good
(b) Table 7
faith, and the reasons for the failure to mediate in good faith, if
known, the numbers of loans restructured or modified."
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 2
Subsection Proviso Location in Report
"The change in the borrower's monthly payment for principal
(b) and interest, and the number of principal write-downs and Table 4
interest rate reductions."1
Commerce conducted a survey in
"To the extent practical, the number of borrowers who report a
(b) 2014, which determined that this
default within a year of restructuring or modification."
information is not available.
"The information received by housing counselors regarding
(c) Table 3
outcomes of foreclosures."
"Any recommendations for changes to the statutes regarding
(d) Recommendations
the mediation program."
Summary of Issues and Recommendations
Stakeholder Issues and Recommendations
The Washington State Department of Commerce (Commerce) is one of four state agencies and several
stakeholders that meet regularly to make recommendations on program implementation. The group is actively
considering recommending changes to the Legislature to address the following issues:
Change the trigger for beneficiary fees back to issuances of Notice of Default: The Notice of Trustee
Sale's timing has resulted in significantly lower fees.
Beneficiary exemptions: Legislative action will prevent the possibility of beneficiaries, not normally
eligible to be exempt from paying fees or from engaging in mediation, from claiming these exemptions
due to the decreased foreclosure activity. The Legislature should suspend these exemptions during
calendar year 2021.
Commerce Recommendation
Allow Commerce to report required data on the web: Commerce recommends that starting with fiscal
year 2021, the program provides the required data quarterly on the program's website instead of
providing an annual report in the form of a document. The required data is better suited to a web-based
format. This will also ensure stakeholders have up-to-date information on the program's outcomes.
1 Chapter 61.24.163 RCW requires Commerce to report on “the change in the borrower’s monthly payment for principal and interest.”
This data is contained in private documents that are not available to Commerce and, therefore, is not included in this report.
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 3
Program Outcomes
Background on Data
Data from Commerce reflect FFP performance for state fiscal years 2012 through 2020, the life of the FFP so
far. State fiscal year data gives a snapshot of certain functions within the Foreclosure Fairness Program. Still,
it does not always reflect the full impact on borrowers, neighborhoods and communities as some mediations
span several years. In some cases, the tables below compare data from the FFP's life to data from the state
fiscal year 2020 to provide a complete picture of program performance.
Program Outcomes
The following tables and figures show data as required in statute. See Table 1 for a crosswalk of statutory
reporting requirements as they relate to the tables below. Table 2 reflects an overview of mediation referrals
the FFP received.
Table 2: Mediation Referrals since Program Start and Fiscal Year 2020
Cases Since Program Cases FY
Mediation Referrals Start, FY 2012-2020 2020
Total Mediation Referrals Received 11,830 441
Referred by Housing Counselors 5,143 (43%) 267 (60%)
Referred by Attorneys (Private and Civil Legal Aid) 6,687 (57%) 174 (40%)
Cases Assigned to Mediators (Includes Cases That Have Been
10,692 421
Mediated, Closed, or Currently Pending an Outcome)
Cases Complete/Closed 10,188 514
Cases Ineligible for Mediation (Typically Because the Beneficiary was
1,197 23
Exempt or the Referral Missed the Window of Eligibility in Statute)
Source: Washington State Department of Commerce (^uncharacteristically low due to the protections provided to homeowners in the Cares Act)
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 4
Table 3: Housing Counseling Agencies' Overall Outcomes in Fiscal Year 2020
Category Description Cases in FY 2020
Outputs
Clients 2236
Referrals to Other Services 363
Outcomes
Pending Outcomes (Still in Counseling) 1278
Withdrawals from Counseling 57
Home Retention Agreements 502
Non-Retention Agreements 52
No Agreements 332
Foreclosures 15
Source: Washington State Housing Finance Commission
Tables 4, 5 and 6 reflect all certified cases' outcomes since the inception of the program, with numbers for
fiscal year 2020 highlighted. These tables contain data from the FFP database and include referrals from both
housing counselors and private attorneys.
Table 4: Mediation Session Outcomes Where Agreement was Reached
Outcomes Cases in FY 2012-2020 Cases in FY 2020
Mediation Session(s) Occurred – Agreement Reached 3018 144
Borrower Stayed in Home
2327 100
(Subcategories Below Are Not Mutually Exclusive)
Reinstatements 207 16
Repayments 71 8
Extensions 199 7
Adjusted Rate to Fixed Rate 229 7
Amortization Extensions 506 15
Interest Rate Reductions 955 19
Principal Reductions 118 1
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 5
Outcomes Cases in FY 2012-2020 Cases in FY 2020
Monthly Principal Payment Reductions 380 6
Monthly Interest Payment Reductions 268 2
Refinances 64 5
Other Loan Structures/Modifications 906 35
Principal Forbearances 175 2
Interest Forbearances/Write-offs 45 1
Fees and Penalties Forbearances/Write-offs 35 0
Other Forbearances2 70 6
Source: Washington State Department of Commerce
Table 5: Outcomes in Which No Mediation Occurred
Outcomes in Which No Mediation Occurred Cases FY 2012-2020 Cases FY 2020
Number of Mediations in Which No Mediation Occurred 4166 285
Home-Retention Agreement Reached Before Session 2194 153
Non-retention Agreement Reached Before Session 291 24
Borrower Withdrew from Mediation (Not Included in Other
677 30
Categories)
Source: Washington State Department of Commerce
2 Because of the way the certification is structured, Commerce is not able to identify unique restructures and modifications.
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 6
Table 6: Mediation Session Outcomes — Borrower Did Not Stay in Home
Non-retention
(Categories Are Not Mutually Exclusive) Cases FY 2012-2020 Cases FY 2020
Deeds in Lieu 55 0
Short Sales 236 5
Voluntary Surrenders 48 1
Cash for Keys 30 0
Other Non-retention Agreements 438 38
Source: Washington State Department of Commerce
Table 7: Mediation Session Outcomes — Findings of Not in Good Faith
Findings of Not in Good Faith Cases FY 2012-2020 Cases FY 2020
Borrower Not in Good Faith3 731 62
Beneficiary Not in Good Faith 343 7
Both Borrower and Beneficiary Not in Good Faith4 31 1
3 Typically, reported reasons for lack of good faith for either or both the borrower and beneficiary include: lack of timely or accurate
provisioning of documents to the mediator and other party; failure to appear at or participate in mediation; failure to pay the mandated
share of the mediation fee; beneficiary’s representative was not been authorized to make binding decisions.
4 Even though the certification specifically tracks parties “not in good faith,” multiple outcomes are not explicitly tracked as being in
"good faith."
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 7
Challenges
First Years of the Program
The Foreclosure Fairness Program was initiated in 2011 in response to the significant number of foreclosures
resulting from the Great Recession. The program provided an opportunity for borrowers facing foreclosure to
demand mediation with their lenders (referred to as beneficiaries in the statute) to look for alternatives to
foreclosure. In 2013, the second full year of the program's operation, there were more than 37,0005
foreclosures statewide, and the program received more than 2,5006 referrals. As the state recovered from the
recession, both the number of foreclosures and the number of referrals declined steadily. With the economy
struggling again, the state faces the prospect of a significant increase in foreclosures.
The CARES Act Protections
In fiscal year 2019, the last year for which we have a full year of program activity unaffected by COVID, we
received 560 referrals. During fiscal year 2020, the number of referrals was at a comparable pace through the
3rd quarter, when COVID reached Washington State. At that time, due to recommendations from the
Department of Financial Institutions (DFI) and the significant protections provided to homeowners through the
federal CARES Act, foreclosure activity all but ceased, and the number of referrals in the 4th quarter was 38,
compared to 154 during the 4th quarter of fiscal year 2019.
The CARES Act provides significant protections for most homeowners facing foreclosure. The CARES Act
covers all federally backed mortgages estimated by the DFI to be approximately 90% of all mortgages in
Washington.
There are various protections for borrowers with federally backed mortgages regarding foreclosure, eviction
and if and when forbearance can be entered. In addition, most of these protections are scheduled to expire on
Dec. 31, 2020.
The Washington State Department of Financial Institutions has issued some recommendations for lenders
holding notes for mortgages that are not federally backed and therefore not eligible for the protections
provided by the CARES Act. These recommendations are valid through December 31, 2020.7 Though not a
requirement, our anecdotal experience is that lenders of mortgages not federally backed are providing some
form of relief to their borrowers.
The Impact of CARES Act Protections on the Foreclosure Fairness Program
The CARES Act has had several major impacts on the Foreclosure Fairness Program. While the number of
referrals for mediation has significantly dropped, the legal aid and housing counselor organizations are
experiencing an increase in the number of calls from homeowners seeking to understand their options. As the
FPP is currently funded by the fees lenders pay to record a Notice of Trustee Sale, and foreclosures have
essentially stopped, the program's funding has disappeared.
5 From unpublished data provided by Zillow.
6 From the Commerce Foreclosure Fairness Program database.
7 Washington State Department of Financial Institutions, " Second Amended Guidance to Washington State Regulated and Exempt
Residential Mortgage Loan Servicers Regarding Support for Consumers Impacted by COVID-19,"
https://dfi.wa.gov/sites/default/files/second-amended-servicer-guidance.pdf
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 8
As borrowers facing foreclosure come out of forbearance, they will likely be referred to the program with
between seven to thirteen monthly payments in arrears. Currently, most lenders have underwriting criteria that
require borrowers to have proof of sufficient income to repay a modified loan. As of this writing, we are not
aware of any specific underwriting standard in place that would account for income loss due to the pandemic
while borrowers seek to modify their loans. The conversations between borrower and beneficiary are likely to
be difficult, and it is anticipated that many borrowers will seek the assistance of the Foreclosure Fairness
Program to gain some balance in those negotiations.
The Long Term Effects of the Economic Downturn Caused by the COVID -19 Pandemic
The recession that began in late 2007 was fundamentally caused by the collapse of one sector of the
economy, the residential housing market, due to the promotion of subprime lending and other questionable
practices. Although there was significant unemployment and lost wealth due to increased foreclosures, the
nation and our region began a slow and steady return to a robust economy once these underlying issues were
resolved. Many experts expect the economic downturn caused by COVID to be significantly deeper. At the
height of the Great Recession, the Gross Domestic Product (GDP) dropped 4.3%.8 As of June 30, 2020, the GDP
had dropped 32.9%.9 That's almost one-third of the economy lost. In July of 2020, the unemployment rate in
Washington State had risen to 10.3%.10 This rate has surpassed the unemployment rate of 10% seen at the
height of the Great Recession.11 With so many businesses closed for good and so many jobs permanently lost,
the road back to economic health may be much longer than we experienced after the Great Recession. There is
no agreement among experts as to what shape that recovery will take.12
The Effects of the Economic Downturn Caused by the COVID-19 Pandemic on Program Funding
Currently, the sole source of funding for the Foreclosure Fairness Program comes from the fees beneficiaries
pay when they record a Notice of Trustee Sale. Because of the forbearance provisions and moratoriums on
federally backed mortgages in the CARES Act, Notices of Trustee Sales are not recorded. Thus funding for the
Program has disappeared.
We expect to see a significant, perhaps exponential, increase in referrals to the program as borrowers emerge
from forbearances with arrears due and the need to modify their loans. However, a unique feature of the
Foreclosure Fairness Program is that foreclosure activity is halted by statute when a borrower is referred into
mediation. This also prevents a Notice of Trustee Sale from being recorded. When the program successfully
finds an agreement between the beneficiary and borrower, historically 50% of the time, if one has not already
been recorded, a Notice of Trustee Sale is prevented. All funding questions and solutions remain fluid and are
being addressed in stakeholder meetings held at the time of this writing and expected to continue into 2021.
Before fiscal year 2018, the program was funded by fees beneficiaries paid for each Notice of Default (NOD)
issued in Washington State. However, the NOD is not a publicly recorded document, and there is no way to
reconcile the number of NODs issued with the number of fees received. In 2018, the funding mechanism
shifted to fees paid by beneficiaries for each Notice of Trustee Sale recorded in Washington State to remedy
8 Federal Reserve History, "The Great Recession," https://www.federalreservehistory.org/essays/great_recession_of_200709
9 Bureau of Economic Analysis, "Gross Domestic Product, Second Quarter 2020 (Advance Estimate) and Annual Update," (June 30,
2020), https://www.bea.gov/news/blog/2020-07-30/gross-domestic-product-second-quarter-2020-advance-estimate-and-annual-
update
10 Washington State Employment Security Department, "Monthly employment report," https://esd.wa.gov/labormarketinfo/monthly-
employment-report
11 Washington State Office of Financial Management, "Unemployment rates," https://www.ofm.wa.gov/washington-data-
research/statewide-data/washington-trends/economic-trends/unemployment-rates
12 The Brookings Institution, "The ABCs of the post-COVID economic recovery," (May 4, 2020), https://www.brookings.edu/blog/up-
front/2020/05/04/the-abcs-of-the-post-covid-economic-recovery/
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 9
this situation. These are public documents and so could be reconciled with the number of fees paid. However,
as stated above, this funding mechanism's flaw became apparent when most foreclosures were halted.
Addressing the Potential Increase in Beneficiaries Exempt from Fees
Another factor that may harm funding for the FPP is a reduction of fees collected as more beneficiaries
become eligible to be exempt from fees in calendar year 2021. Currently, by statute, beneficiaries may apply to
be exempt from paying fees into the FPP if they have recorded fewer than 50 notices of trustee sales in
Washington during the previous calendar year. The CARES Act was signed into law at the end of March 2020,
and foreclosures in our state plummeted for three-quarters of calendar year 2020. It is reasonable to assume
that many beneficiaries not normally eligible for the exemption will be eligible due to the pandemic's unique
circumstances.
Summary of Funding Issues
CARES Act protections and DFI recommendations suspended most foreclosure activity, and beneficiary
fees tied to recordings of Notices of Trustee Sales disappeared.
Before COVID, it became clear that there was a structural flaw in the funding mechanism as the
program's success reduced the number of Notices of Trustee Sales recorded, which resulted in
decreased funding.
A consequence of the suspension of foreclosure activity is beneficiaries not normally eligible to be
exempt from fees will now qualify for this exemption in 2021, further crippling the funding of the program
Possible Solutions to Funding Issues
For a borrower to be eligible for mediation, they must have been issued a Notice of Default by the beneficiary.
Moving the trigger for beneficiary fees back to the NOD will eliminate the program's problem of being a victim
of its success. Currently, the NOD is not a recorded document. To reconcile the number of NODs issued with
the amount of beneficiary fees received, this information will need to be reported directly to Commerce with a
partial exemption from public disclosure to protect borrowers' privacy. The aggregate data would be available
to the public.
Addressing the Potential Increase in Beneficiaries Exempt from Mediation
Beneficiaries also have the right, by statute, to be exempt from mediations altogether if they were "not a
beneficiary of deeds of trust in more than 250 trustee sales of owner-occupied residential real property that
occurred in Washington State" during the previous calendar year. Again, it is possible that due to the cessation
of most foreclosures, beneficiaries that under normal circumstances would not be eligible for exemptions are
eligible to be exempt from mediation. This could result in the disqualification from mediation of a significant
number of borrowers in 2021. We will need a legislative fix to prevent this outcome.
Preparations for Post-Forbearance Referrals - New Mediators
Before COVID-19, most mediators were not working to capacity, especially those in the larger counties. With
the expected increase in foreclosures coming in 2021, the program is looking at ways to bring on mediators as
needed in selected counties where there are not enough mediators. As of this writing, the program is
developing an on-demand web-based training to be ready to launch in early 2021. This project is funded by
CARES Act money and needs to be substantially completed by December 30, 2020. We will be working with the
Dispute Resolution Centers (DRCs) and experienced independent mediators to revamp our policies and
practices on training, mentoring and finally, accepting new mediators into the FPP as needed.
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 10
Report to Legislature
By statute, Commerce is required to provide an annual report to the Legislature. Since the FFP's inception,
these reports have been largely static narrative documents out of sync with the FFP's fluid environment.
Decision-making for the FFP is driven by an active and engaged stakeholder group including members of the
Legislature, Commerce staff, borrowers' advocates (housing counselors and attorneys), beneficiaries'
advocates (attorneys and trustees) and representatives from financial institutions (lenders, mortgage bankers
and credit unions.) Often key meetings are held, and legislative decisions are made after the report is
published.
Commerce recommends a move to a more dynamic way of reporting data on the FFP to those who need it.
The current reporting structure does not meet that purpose in any meaningful way.
Commerce proposes moving the reporting mechanism on to the FFP website, where it can be in a dynamic
format updated quarterly.
Recommendations
Even before COVID-19, some issues needed to be addressed concerning the FFP's funding and reporting
mechanisms. The arrival of COVID-19 and the ensuing economic downturn has exacerbated these issues and
surfaced others equally worrisome.
There are several proposed changes to ensure continued and adequate funding of the FFP, especially as the
program prepares for a significant increase in foreclosures and mediation requests as the Federal Coronavirus
Aid, Relief and Economic Security (CARES) Act protections expire. Some of the changes will repair underlying
flaws in the FFP's funding mechanism, which is currently tied to fees paid by beneficiaries on the recording of
Notices of Trustee Sales. Other changes would alter exemptions to fees, mediation or both for some
institutions for whom these would not normally be available.
Stakeholder Issues and Recommendations
The Washington State Department of Commerce (Commerce) is one of four state agencies and several
stakeholders who meet regularly to make recommendations on program implementation. The group is actively
considering recommending changes to the Legislature to address the following issues.
Change the Trigger for Beneficiary Fees Back to Issuances of Notice of Default: The Notice of Trustee
Sale's timing has resulted in significantly lower fees.
Allow for beneficiaries to provide this information directly to Commerce
Exempt personal information in NODs from public disclosure to protect homeowners' privacy
Direct NOD data to be reported to the public in aggregate
Beneficiary Exemptions: Legislative action is needed to prevent the possibility of beneficiaries, not
normally eligible to be exempt from paying fees, claiming exemption from fees due to the decreased
foreclosure activity. It is recommended that this exemption be suspended during calendar year 2021.
Recommendation Regarding Increased Exemptions from Mediation
Another exemption that needs legislative action to preserve the program is the beneficiary's exemption from
mediation. When a beneficiary is exempt from mediation, any borrower with that beneficiary as note holder is
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 11
ineligible for mediation. Action is needed to prevent the possibility of beneficiaries ineligible for exemptions
under normal circumstances from claiming exemption from mediation due to the decreased foreclosure
activity caused by the CARES Act protections. It is recommended that this exemption be temporarily
suspended during calendar year 2021.
Commerce Recommendation
Statutory Requirement for the Program's Report to the Legislature
The statute is very specific as to the data the FFP is required to report to the Legislature. This data is much
better suited to a dynamic web-based format. Commerce recommends that this data is provided on its website
and updated quarterly starting with fiscal year 2021.
FORECLOSURE FAIRNESS PROGRAM REPORT 2020 12
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