States Tackle Foreclosures In Absence of Federal Help

"That is not a bad effort" for a few months of activity, Hudson said.

But loan funds have financial constraints. These funds can help only a limited number of borrowers, and even then they tend to have the greatest impact in states such as Pennsylvania that have not been overwhelmed by foreclosures.

They are less effective in previously overheated markets -- such as California, Florida and Nevada -- where borrowers grossly overpaid for their homes and now owe far more than their homes are worth, said Michael Collins of the PolicyLab Consulting Group, a mortgage research firm based in Ithaca, N.Y.

Through their own programs, New York has refinanced only three borrowers since September, and Massachusetts has refinanced 12 since July. These two loan refinancing initiatives do not help borrowers whose mortgages exceed the value of their homes.

"Once people are in that situation, there's not much that any state or local program can do unless the lenders make concessions," Collins said.

A few governors tried pushing lenders to do just that. California's Arnold Schwarzenegger attracted national attention in November when he announced that some of the state's largest lenders had voluntarily agreed to temporarily freeze interest rates on some adjustable loans.

The results have disappointed consumer advocates. The number of loan modifications, which could involve changing either the principal or interest rate of the mortgage, declined 30 percent from November to January while foreclosures climbed, said Paul Leonard, director of the Center for Responsible Lending's California office.

"These kinds of agreements are potentially very important but have not yielded the results people have hoped for," Leonard said. "That's the problem when you have bully pulpit negotiations as opposed to legislation."

For troubled borrowers in California, foreclosure remains the most common outcome, the California Reinvestment Coalition found after it surveyed 38 counseling firms in December that worked with 8,000 borrowers. Even some of the lenders that pledged to work with Schwarzenegger did not come through for borrowers, according to the coalition.

"We need something bigger and bolder, like some of the proposals in Congress," said Kevin Stein, the coalition's associate director.

Those proposals include providing $10 billion in new tax-exempt bonding authority for state and local housing agencies to refinance mortgages and $4 billion for cities to buy vacant foreclosed properties. Some proposals support expanding the role of the Federal Housing Administration so it can help refinance more troubled borrowers.

While the proposals wind their way through Congress, foreclosures keep mounting and local policymakers keep churning out ideas. An increasingly popular strategy is revamping the foreclosure laws in favor of borrowers.