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Foreclosures Push States to Try a Mix of Solutions

As the federal government debates responses to the foreclosure crisis, states are experimenting with a broad range of solutions, including emergency loans and agreements to limit high interest rates. The result is a rapidly changing patchwork of local approaches, some far-reaching, others modest, according to a survey issued Tuesday by the Pew Charitable Trusts.

Among other measures, 20 states have created intervention programs, 13 have set up counseling hot lines, 14 have assembled task forces and 9 have established funds for emergency loans or refinance loans, totaling $450 million.

“States have had to step into the void because the federal government has not moved,” said Tobi Walker, a senior program officer at Pew. “The nature of the problem changes quickly; that’s why it’s important to look to states, which can be far more innovative. They can adapt solutions to local circumstances.”

It is too soon to say how effective any of the programs will be.

The states face an uphill battle, in part because of resistance from the lending industry to new regulation. Only nine states require mortgage brokers to consider the best interests of borrowers when making loans, and only seven require lenders to assess borrowers’ ability to repay. At the same time, state governments are hamstrung by declining revenues as a result of the housing meltdown.

Ohio, which has been hit particularly hard, with 85,000 properties going into foreclosure last year, announced last week a nonbinding agreement with nine large loan servicers to modify troubled loans and report their progress to state officials. In addition, the state’s chief justice recruited more than 1,000 lawyers to represent borrowers free of charge, and the state set up a hot line to direct borrowers to the lawyers.

“We need more help from the federal government,” said Gov. Ted Strickland of Ohio, a Democrat. “The states are in trouble. States do not have resources or mechanisms to deal with this issue.”

But even so, Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio, said the results were visible on the ground. “Up through the end of 2007, counselors and homeowners said, ‘We call these companies and we get the runaround, we can’t get through the maze,’ ” said Mr. Faith, referring to loan servicers. “We weren’t seeing any significant modifications. That’s beginning to change. When I talk to the nonprofits, they say they’ve had as many loan modifications in the first quarter of 2008 as in all of 2007.”

Gov. Tim Pawlenty of Minnesota, a Republican, this week asked loan servicers in the state to sign a similar agreement, and he announced a program to pay for mediators when counselors and lenders come to an impasse in modifying loan terms. The state’s Commerce Department also set up a hot line for housing counselors to call when they cannot get responses from lenders.

Using public and private money, the state provided grants to increase the number of housing counselors to 37 from 18. But even so, foreclosures are expected to rise this year.

“States have an important role in the foreclosure crisis, and Minnesota is taking among the most aggressive actions to help homeowners,” said Brian McClung, a spokesman for the governor. “But at a broader level we’re hopeful the federal government will provide some overarching structure.”

In all, about 20 states formed partnerships with the nonprofit Homeownership Preservation Foundation, which provides homeownership and foreclosure counseling, sometimes over the telephone.

In Colorado, the state housing division raised $750,000 in private donations to hire a nonprofit agency to run a hot line that refers callers for counseling in person. The program grew out of a consortium of lenders, servicers, nonprofit groups and state and federal agencies. “It needs to be a public-private partnership,” said Kathi Williams, the division’s director.

Mrs. Williams said that the hot line received 30,000 calls last year, and that four of five callers who received counseling had so far stayed out of foreclosure. But foreclosure remains a tenacious problem, up 10 percent over last year, compared with a 30 percent jump in 2007.

Other states have called for delays in the foreclosure process, emergency loans and legislation to prevent foreclosure rescue fraud. Maryland passed a ban on prepayment penalities, which make it onerous or impossible for many borrowers to refinance high-cost loans.

While several states — including Colorado, Maine, Massachusetts, Minnesota, North Carolina and Ohio — have passed legislation requiring tighter underwriting standards for lenders, such legislation may be more effective at the national level, said Ms. Walker of Pew, because of the concerted resistance by the lending industry.

Not all state programs have been effective, said Allen Fishbein, director of housing and credit policy at the nonprofit Consumer Federation of America. An emergency loan program in Maryland failed because its eligibility requirements disqualified the people who needed it most.

“Trying to find loan products is a process of trial and error,” said Thomas E. Perez, the state secretary of labor, licensing and regulation. “We now have new products that allow people with blemishes on their credit record to qualify. We’re learning from our mistakes.”

While states are working ahead of federal policy, many say the problem is too big for states to handle on their own.

“It’s tinkering around the edges,” said Mr. Faith of the Ohio homeless organization. “We’re saving a few thousand homeowners when we have 85,000 foreclosure filings a year. We’ve been trying to see what we can do in the absence of action on the federal level. But we don’t have the resources or the regulatory authority or the leverage with the industry. Much more serious progress is only going to be achieved if the feds take appropriate action.”

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