Published: February 18, 2009

Obama foreclosure plan draws inspiration from Philadelphia

By Steve Kastenbaum

As President Barack Obama unveils his $75 billion plan aimed at preventing home foreclosures, the mayor of Philadelphia is proud the scheme contains an aspect that was first put to the test in the City of Brotherly Love.

Under President Obama's foreclosure fix, judges would able to intervene and mediate loan modifications between the servicer and homeowner.

Philadelphia introduced mandatory court interventions for homes entering into foreclosure in June of 2008. Since then, 600 homes have been saved from foreclosure and about 1,400 are in the process of rescue.

Philadelphia Mayor Michael Nutter first presented details of his city's Mortgage Foreclosure Protection Program to then President-elect Barack Obama at the National Governors Association meeting in early December.

Listen: How does Philadelphia's program work?

"What we're all committed to is helping to make sure that people stay in their homes, that they do not lose their homes because they did not have an opportunity to renegotiate whatever their rate was, whatever their term was," Nutter said.

Under Philadelphia's Mortgage Foreclosure Protection Program, the homeowner, the lender and a housing counselor from a community-based organization must appear before Judge Annette Rizzo in the Court of Common Pleas.

Rizzo aims to see if deals can be arranged to prevent people from losing their homes, she said.

"We're going to force that dynamic. We're going to create that stage where people have to come to court, have to come to the table to see if a deal can be worked out," she said.

In other cities, non-profit organizations and community groups have been playing the role of mediator between lenders and homeowners in foreclosure. But Rizzo believes the only way to have large-scale success in preventing foreclosures is to get government and the courts involved. "I really do think it does take the mandate. It takes the mandate of some government entity to say stop."

Philadelphia's interventions wouldn't work without the cooperation of the major lending institutions in the city.

Don Haskin, Pennsylvania Community Relations Director for Citigroup, believes this is a model that could work all over the country. "What's in it for the banks is seeing that families stay intact and communities stay intact."

But banks have been resistant to a nationwide program that would involve mandated court interventions. They're reluctant to have a mechanism in place that could alter every mortgage in the country.

Sandra Rodriguez is one of Philadelphia's success stories. The single mother of three children bought her home in 1992 when she was just 19 years old. "It was like a dream come true," she said.

Fifteen years later, she became unemployed and fell behind in her mortgage payments. She recently found a new job but by then, foreclosure proceedings had begun. "I was overwhelmed and I really needed some help."

Rodriguez went before Rizzo and the court was able to mediate between the homeowner and the bank. The terms of the mortgage were modified and since then, Rizzo has been able get caught up on her payments. Rodriguez said, "I'm more than happy to say I'm not losing my home. I'm there and I'm going to be there for the next 15 years."

Not every case that goes before the judge has a happy ending. So far, in 20 percent of the mandated foreclosure interventions, the parties agree to a "graceful exit" — that is, foreclosure.

The owner's personal situation is taken into account and those with special medical needs are allowed to stay in their homes until a suitable living situation can be found. In situations where children are in the home, the bank is encouraged to let the family stay in the house until the end of the school year.

According to RealtyTrac, the online marketer of foreclosed properties, approximately 860,000 properties were foreclosed on across the nation in 2008.