By John W. Schoen Senior producer
msnbc.com
updated 10/11/2009 7:28:19 PM ET 2009-10-11T23:28:19

The stalled pace of the government's effort to head off home foreclosures has left families looking for other ways to save their homes. There are people out there who can help. But you have to pick very carefully.

Can an attorney actually get you a loan modification if the system is stalled like it appears to be? If so, how do you find a reliable one?
— Kathleen H.. Corona, Calif.

None of the government’s efforts to help Americans save their homes has put any legal pressure whatsoever on lenders and their representatives to offer more affordable terms to homeowners stuck in bad mortgages.

With mortgage rates at historic lows, millions of homeowners could get substantial relief if they were just given a new loan at current market rates. But most lenders and investors holding mortgages aren't going along with that solution.

And despite recent claims by the Treasury, which last week announced its Making Home Affordable program has helped 500,000 homeowners, the government’s foreclosure relief program has fallen short of what’s needed.

That was the conclusion of a report by the committee set up by Congress to oversee the Troubled Asset relief Program — aka the $700 billion TARP program created to bail out the big banks that created these toxic loans. Having sunk the global financial system and driven the economy into the deepest downturn since the Depression, these banks have largely refused to take the steps needed to stop the ongoing wave of foreclosures created by their earlier wave of rogue lending. With some 12,000 new foreclosure filings a day, the problem is only getting worse.

Part of the reason is that foreclosures are now claiming the homes of families that took out conventional mortgages, put 10 percent to 20 percent down and have now lost their income to unemployment. None of the government’s programs were designed to deal with people in this situation.

Nor are these programs designed to provide relief for homeowners who owe more than their home is worth — either because home prices have fallen or because the price they paid for their home was based on a fraudulent appraisal, or both. There is no provision in any of the government's programs requiring a lender — or even offering incentives — to forgive part of the principal owed, even if it clearly represents home equity that will never return.

The current foreclosure relief program says: That's the homeowner's problem, not the lender’s. Never mind that it was the lender who made the unimaginably costly miscalculation, when it made the loan in the first place, that house prices wouldn't fall.

Some members of Congress tried and failed — more than once — to pass a law that would have provided real relief for homeowners. A simple change in the bankruptcy law would let a judge modify the terms of a mortgage from the bench — just as they do for every other form of debt, from credit cards to car loans to mortgages on second homes or yachts.

Each time the change was proposed, lenders fought fiercely to stop it. None of the other measures the government has tried — from the Hope Now Alliance to Hope for Homeowners to Making Home Affordable — has made any significant dent on the pile of bad loans that is forcing families from their homes, driving home prices lower and creating a gigantic headwind for any economic recovery.

All of which has helped create a fresh round of mortgage fraud by an active group of “foreclosure rescue specialists.” Desperate homeowners who seek out these folks are told that, for a fat upfront fee, their home can be saved. The scam takes a variety of forms . But none of these empty — and costly — promises will save your home.

There is a small group of lawyers out there who are having some success challenging foreclosures using a variety of legal arguments. Some have attacked the paper trail created when millions of mortgages were bundled into trusts, chopped up into pieces and sold off to investors. Others attack the validity of the original mortgage with evidence of predatory lending when it was written.

To find a good lawyer who understands the ins and outs of bad mortgages, check with a HUD-approved housing counseling agency in your area for a referral. Or look for a law firm that specializes in consumer law. Ask for multiple references and check them out. You’ll need to find a lawyer who understands where to look for flaws in the paperwork that landed you with a bad loan. There's no guarantee they'll be able to find one. These are not easy cases to make.

Schedule a visit and discuss your case; the first session should be free and should clearly spell out what all this will cost. If you’re asked for a big upfront fee, just say “Thanks” and get up and walk away.

Unfortunately, there are far too many bad mortgage cases and too few lawyers who handle them. One reason is that it’s hard for most people who are losing a home to afford to hire a lawyer. By the time they get a foreclosure notice, most families have already spend every last nickel trying to save their home. If you can’t afford a lawyer, try to find a local legal aid office.

For decades the U.S. economy has been based on consumers spending money that they didn't have at the time. With so many of those consumers now facing bankruptcy and foreclosure, has the time come to build an economy that isn't based on outspending our means?
Thomas K. Illinois

It looks like we’re long past that time. We’re in the process of building that economy now, but it’s not at all clear what it will look like.

Some people would like to go back to the days when the bulk of our economy was based on making and building things and selling them to the rest of the world. The weak dollar has helped boost exports lately. Global leaders who recently met to hammer out new economic polices agreed that other countries need to encourage more consumer spending now that American consumers are tapped out. But it’s hard to see how we’ll go back to a time when manufacturing makes up the bulk of our GDP.

The boom and bust of the past decade was based in part on a consumer borrowing binge. But it was also a function of a gigantic lending binge by the banks and money mangers who did a great business taking money from over here, moving it over there, and pocketing a little bit in the process. Now that the global flow of money has slowed, there’s also a hole in the economy where “financial services” had been growing rapidly.

We may not know what this new economy looks like for years. That’s how long it will likely take to produce enough jobs to rehire the 8 million people who have been sidelined since the recession began.

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Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.38%
$30K home equity loan FICO 4.98%
$75K home equity loan FICO 4.39%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 10.86%
10.87%
Cash Back Cards 16.36%
16.36%
Rewards Cards 15.93%
15.94%
Source: Bankrate.com