In many respects, Maryland is weathering the recession better than most other states, but not when it comes to foreclosures. The number of foreclosure events -- either final dispositions of foreclosures or court filings -- increased in the final three months of 2009 to nearly 17,000. That's 13.4 percent higher than the previous quarter and nearly 70 percent higher than the previous year. Hardest hit by far is Prince George's County, followed by Baltimore City. The foreclosures have crippled the state's housing market and driven down real estate values, compounding economic woes that could last for years.

During his term, Gov. Martin O'Malley has made foreclosure prevention one of the key focuses of his administration, pushing through legislation that lengthened what was previously one of the quickest foreclosure processes in the nation. Now he's back with legislation to require mediation between lenders or mortgage servicers and borrowers. It has the general support of both consumer advocates and the state's banking industry, and it deserves to be enacted by the General Assembly. In many cases, it would do a lot of good. But lawmakers and homeowners should understand that it will not solve the foreclosure crisis and that given the way things have deteriorated, it's possible that nothing the government can do will solve it completely.

Although Governor O'Malley's legislation is being called a mandatory mediation bill, mediation is not the most important element of it. The key is that it will force lenders or loan servicers to make an affidavit before they file for foreclosure indicating that they have tried all other options first. Various federal and state programs can help homeowners to modify their loans, and other outcomes besides foreclosure can help bring both sides to a softer landing. But many homeowners don't know about them, and lenders or mortgage servicers don't necessarily offer the information. Mediation would come into play if the two sides dispute the conclusion about whether the homeowner is eligible for any of the assistance programs, but as it is, too many troubled borrowers don't even get to that point.

In the romanticized notion of mortgages, such rules wouldn't be necessary. The story we often hear is that foreclosures are no better for the lender than they are for the borrower and that both sides have an incentive to find an alternative. It conjures the "It's a Wonderful Life" idea of a homeowner heading down to the building and loan to talk over his problems with kindly George Bailey, who is just as invested in the community as he is.

That's still true for some borrowers, but the profusion of mortgage-backed securities and other Wall Street innovations that bundled loans and sold them to investors means that the borrower often has no real relationship with the company that services his loan, and that company, in turn, has no more than a contractual relationship with the entity that actually owns the debt. Talking to the miserly Mr. Potter would be better than many homeowners can manage these days; at least he had a financial stake in the situation and the power to negotiate.

The representatives of the banking industry who participated in the task force that helped design this legislation have expressed concerns about the timing of the process. They argue that they should be able to file for foreclosure in court before seeking alternatives with the borrower. In some cases, they say, borrowers don't take foreclosure seriously until they get notice of a court filing, and just because a lender files court papers doesn't mean the foreclosure actually has to be completed.

They do have reason to worry about lengthy delays in the process; as long as a loan is delinquent, they are forced to hold larger reserves and thus have less money to loan in the community. And the longer a homeowner is delinquent in his or her loan, the more difficult it is to catch back up.

But the legislation does allow lenders to certify that a borrower has not responded to efforts to determine eligibility for assistance. That should be sufficient protection for lenders. Borrowers are at enough of a disadvantage that they deserve to be granted a pause to seek alternatives.

The experience of Nevada, where a similar law has been in effect since last summer, shows the promise and limitations of such an effort. According to the Legal Aid Center of Southern Nevada, which works with troubled borrowers, about a third of homeowners in foreclosure have requested mediation since the program began last summer. Of those that have completed the process, about a third avoided foreclosure, and about 25 percent weren't eligible for any of the assistance programs and lost their homes. In the remaining cases, mediators found problems with the way the foreclosure was handled, and the homeowners "won" the mediation. That means they've stayed in their homes but are in a state of limbo. The banks may decide to try to refinance, or they may foreclose again. The program is too young to know how many people will ultimately keep their homes.

Part of the limitation of foreclosure-prevention programs like the one in Nevada is that the reasons for the crisis have shifted. The first wave of foreclosures was largely the result of buyers being given exotic mortgages -- interest-only loans, loans given out without verification of income or assets, loans in which interest rates ballooned after an initial period. As a result of efforts by the federal and state governments (not to mention a sustained period of low interest rates), many of the people with those mortgages who qualified to refinance have already done so. Many others have already defaulted on their loans.

What's happening now is a second wave of foreclosures among people who have lost their jobs or seen their incomes drop, a problem compounded by falling home values. People in the real estate industry are worried that people with "underwater" mortgages -- homeowners who owe more than their houses are worth -- will start walking away from their homes in large numbers, further deepening the cycle of falling property values and foreclosures. That hasn't happened much in Maryland yet, but according to First America CoreLogic, a firm that tracks real estate statistics, as many as a fifth of mortgages in the state are now underwater.

The federal government has a program, the Home Assistance Refinance Program, or HARP, that can help some homeowners in that situation, but it requires borrowers to act before they get seriously behind on their mortgages.

For that reason, the governor's legislation, which requires lenders to provide information about foreclosure-prevention programs to borrowers as soon as they fall behind on payments, coupled with his previous efforts to encourage homeowners to call for help at the first sign of trouble, can make a difference. And the experience in Nevada suggests that simply forcing lenders and borrowers to sit down together, while not a panacea, can help many. Governor O'Malley's legislation won't stop the foreclosure crisis in Maryland, but it can help thousands of people stay in their homes.

Readers respond

How about the governor's promise to help not just homeowners but also people who had high electric bills? He promised to rein in BGE and what happened?

I'm prepared for Emperor O'Malley to come up with all sorts of ideas in the next nine months to make him look like the anointed one. Truth is, he's a liar and a politician and nothing he's said from election day till now happened and nothing he says from now till election day will happen. Wake up and stop drinking the O'Kool-Aid.

Kelly

It may help a few homeowners, and it may help the bankers, but it surely won't help the market or the state as a whole if we delay the day of reckoning that this measure does NOTHING to stop.

Mr. Rational