While the government’s mortgage modification and foreclosure prevention program has not been gaining as much traction as many in the administration may have wished, other states have found a different solution.  Connecticut and New Jersey unveiled their own mortgage foreclosure modification programs, and have found them to be increasingly successful.   In Connecticut, over 2,500 people have participated in the program since its introduction in July of 2008, with a 60% success rate at avoiding foreclosure. Another small number were able to negotiate stays on the foreclosures until they could find another housing option. In New Jersey, 614 borrowers have qualified for mediation, with a little over a third of them negotiating to keep their homes.

In both states, borrowers who receive foreclosure notices are sent letter by the judicial branch informing them of their eligibility for the programs, so why are the numbers so different?  40% of those eligible participate in Connecticut, but only 5% participate in New Jersey. The difference between the two programs is that in New Jersey, borrowers must go through financial counseling before proceeding to mediation.  In Connecticut, the borrowers go directly to a mediation.  Connecticut borrowers still do generally receive counseling, but it generally occurs after the first mediation.

We have spoken at length about the ways in which counseling is able to help borrowers at risk for foreclosure (as well as those considering a reverse mortgage).  However, the more hoops a borrower must jump through, the less likely they are to participate in a program. If it turns out to be true that the 35% difference in borrowers who are participating in these programs is primarily due to whether or not counseling is required, it would be an interesting case for reducing the emphasis on counseling in order to increase participation and results. Yet it would be surprising if this was the only reason for the change in participation rates.