AUGUSTA – Members of the Insurance and Financial Services Committee heard testimony from frustrated homeowners, lawyers and local bank representatives Monday during a public hearing on legislation that would address home foreclosures in the state.

Much of the testimony focused on a proposal by Rep. Sharon Treat, D-Hallowell, which seeks to prevent home foreclosures. Similar measures, including a bill sponsored by Sen. Deb Simpson, D-Auburn, also received attention.

Treat’s bill would make mediation mandatory in home foreclosure cases, require the Maine State Housing Authority to establish a statewide hot line to help struggling homeowners and clarify that renters living in a foreclosed property can live there for the remainder of their lease.

“The number and rate of loans in foreclosures are rising,” said Carla Dickstein, senior vice president of Coastal Enterprises, a community development finance institution based in Wiscasset. “We don’t have the scale of a problem that we hear about in more urban states, but nonetheless, the growing foreclosures of both sub-prime and prime loans are affecting Maine families, communities and the economy.”

More than 5,000 loans, nearly all residential, were recorded in foreclosure in the court system in June 2008 and by the end of 2008, more than 8,600 loans were “seriously delinquent,” Dickstein said.

“If no action is taken, we expect to see over 25,000 loans in foreclosures in the next four years in Maine,” she said.

Simpson’s bill requires that foreclosure notifications and the sources available for assistance be written in “plain English” so that homeowners understand what the documents mean and the options that are available to them. It would help many homeowners who may have the financial means to avoid foreclosure do so, Dickstein said.

Another hurdle for homeowners who want to make good on their mortgages despite falling on hard times is actually speaking with someone at the financial institution that owns their loan.

“It’s been a living hell for two years,” said Shery Morang of China, who along with her husband, Donald, had been trying to modify the terms of their home loan to avoid foreclosure.

First, the couple had to figure out which company owned their loan, because their mortgage was sold from one entity to the next; then they had to get someone to return their phone calls. Mandatory mediation might have kept them in their home, Shery Morang said.

“We really did try to save our home. If we could have had mediation, we might have avoided all the stress and the duress that we’ve been through,” she said.

Lewiston-Auburn had the second highest rate of foreclosures in the state in August 2008, said Kate Brennan, a housing organizer for the Maine People’s Alliance in Lewiston.

“The provision of the bill that would increase borrowers’ awareness of options other than foreclosures would mean that Maine State Housing Authority would be there to advocate on behalf of borrowers like elderly folks in Lewiston who can’t make ends meet on a fixed income, particularly when rates change,” she said.

Members of Maine’s banking community opposed the measures as written, citing fears that the changes would hinder lending and further cripple the real-estate industry.

“Mandatory mediation will overwhelm mediators with people with no intention to stay in their homes,” said Sterling Williams, representing the Maine Association of Community Banks. Williams said Maine’s local banks have maintained consistently responsible lending practices and shouldn’t be forced into lengthy court mediations for every foreclosure case.

Linda Gifford of the Maine Realtors Association said the industry will rebound, if lawmakers don’t overreact.

“Things happen in cycles, and this will pass,” she said. “It will come back as long as we don’t put so many impediments on it that it can’t.”

Work sessions for the bills have been scheduled for Monday, May 4.

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