Minnesota Attorney General Lori Swanson, joined by State Representative Deb Hilstrom, citizens, and others, today proposed the adoption of a “Homeowner-Lender Mediation Act” to tackle the foreclosure crisis, a proposal that would be modeled after the successful “Farmer-Lender Mediation Act” adopted by the Minnesota Legislature in 1986 to tackle the farm crisis.

Swanson said the federal bailout bills, totaling over $1 trillion, have done little to help the ordinary homeowner facing foreclosure. “Despite all the federal bailouts, very little is being done for the little guy,” Swanson said. She added that, “There is no silver bullet to the crisis we’re in. But it’s time to move beyond the standard roadblocks and get the job done where we can.” As the impetus for the proposal, Swanson cited the devastating impact to the economy and home values caused by the foreclosure crisis, projecting that by 2010, Minnesotans will have lost almost $70 billion in home value.

“The economy will not recover, nor will home values stabilize, as long as people are going into foreclosure at record levels. A proposal like this would really help the hardworking, middle class residents of my district who are financially squeezed in these troubled times,” said Representative Hilstrom, whose suburban district (Brooklyn Park/Brooklyn Center) has been hard-hit by the foreclosure crisis.

In the mid-1980s, Minnesota and the Midwest faced a farm crisis, with a record number of farm foreclosures. In response, Minnesota became the first state in the nation to enact a “Farmer-Lender Mediation Act.” Under the Act, a lender could not foreclose on a farmer unless the lender first offered to mediate the debt. During the mediation process, the foreclosure was held in abeyance. The program helped an estimated 14,000 farmers.

In the same vein, under a “Homeowner-Lender Mediation Act,” before a lender foreclosed on a property, the lender would give the debtor notice of the right to mediation. The homeowner would then have a period of time--two weeks in the Farmer-Lender Mediation Act--to request mediation. The mediation would occur promptly--within 20 days of the request, under the Farmer-Lender Mediation Act. A financial analyst would be made available to counsel the homeowner. The parties to the mediation would be required to negotiate in good faith and could agree to a range of remedies, from adjusting the interest rate, adjusting the principal, extending the repayment period, modifying the loan terms, and the like. The foreclosure process would be deferred for at least 90 days after the homeowner requested mediation so long as the parties negotiated in good faith. If a lender failed to act in good faith, the homeowner could request court-supervised mediation, in which case the foreclosure could be held in abeyance for another 60 days. Swanson said the requirement of mandatory and good faith participation in the mediation process is a critical lynchpin in the success of such a bill. She said it would hopefully solve one problem cited by servicers as a reason for not modifying loans--namely, that they don’t own them.

“The Farmer-Lender Mediation program worked in the mid-1980s to help save our family farms. I hope a similar proposal could help our homeowners in distress today,” said Representative Mary Ellen Otremba, Chair of the Agriculture and Rural Economies Committee.

Swanson complimented the Legislature for trying earlier this year to address the foreclosure crisis. She particularly commended Senator Ellen Anderson and Representative Jim Davnie for their leadership earlier this year in drafting and successfully passing a foreclosure deferment act, which was later vetoed.

“Minnesota showed great leadership in 2007 when we enacted measures to curb predatory lending practices--something most states and Congress still haven’t done. Minnesota was the beacon for farmers around the country when we adopted the Farmer-Lender Mediation Program in 1986. We can be a leader in tackling this crisis too,” Swanson said.

Attorney General Swanson has been at the forefront of responding to the predatory lending and mortgage foreclosure epidemic, proposing legislation before she even took Office in December of 2006, to curb predatory mortgage lending practices. In 2007, the Attorney General’s Office worked with the Legislature to pass this legislation, banning many of the practices that led to the foreclosure meltdown. Swanson has urged the U.S. Congress and the Federal Reserve Board of Governors to take similar actions at the federal level. The Attorney General’s Office has filed lawsuits against a variety of predatory mortgage lenders and so-called “foreclosure assistance” fraudsters, and intends to file additional actions in the mortgage area in the coming months.