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Can lenders do more to halt foreclosures?

Banks have begun to modify loans for mortgage-holders, but experts say not nearly enough.

Faces foreclosure: Deb Westfield could lose her home in Farmington, Minn. Hope Now, a partnership of the US government, counselors, lenders, and investors, is helping her try to prevent it.

janet hostetter/ap

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When Eddie Zepeda bought his house in a San Diego suburb four years ago, it was worth $440,000. Today it's valued at $365,000, even after $32,000 of home improvements. To make matters worse, he's been paying an extra $700 a month ever since his mortgage rate reset two years ago.

He has tried to adjust, but a second job couldn't cover the extra payment. Five banks refused to help him refinance. "They all just told me to hold on tight," he recounts.

That's why Mr. Zepeda contacted You Walk Away, a new and fast-growing website that advises homeowners if foreclosure is their best available option. Zepeda decided it was. "My bank gave me no options," he says.

As foreclosures rise and Congress searches for ways to help homeowners avoid them, a key question is what lenders are doing to ease the crisis that they helped create. Banks and other mortgage-servicing companies point to the rising number of loan modifications and other deals they're striking with at-risk borrowers as evidence that they're tackling the problem. Critics from homeownership advocates to Federal Reserve Chairman Ben Bernanke say they can do more. Some in Congress want to pass laws that would allow bankruptcy judges to force lenders to do more, though it's not part of the current bipartisan Senate bill.

At the heart of the debate is the insidious effect of foreclosures. When they happen, homeowners lose their homes and what they've invested in them. Lenders lose, by one estimate, half the value of the entire loan by the time they've resold the property. If foreclosures proliferate, entire neighborhoods lose as housing values drop.

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