States Are Taking Action to Help Mitigate Crisis.

Washington, DC -- One in 33 homeowners is projected to be in foreclosure over the next two years, primarily as a result of subprime loans made in 2005 and 2006, according to a new report released by The Pew Charitable Trusts. In some states, the outlook is especially grim; for instance, nearly one in 11 homeowners in Nevada is projected to be in foreclosure and one in 18 Arizona homeowners may face the same circumstance over the next two years.

Homeowners being foreclosed upon may not be the only homeowners affected, according to data cited in the report. An additional 40 million neighboring homeowners may see their property values and their municipalities' tax bases drop by as much as $356 billion, largely over the next two years.

Defaulting on the Dream: States Respond to America's Foreclosure Crisis is the first-ever, comprehensive look at what all 50 states and the District of Columbia are doing to try to address the subprime mortgage fallout. The report finds that more often than not, states are at the forefront of developing policies and programs aimed at preventing more irresponsible loans from being made and improving residents' ability to stay in their homes. The report highlights states that are making headway to strengthen loan underwriting standards and help borrowers avoid foreclosure - and underscores that any federal legislation must complement the work being done in the states, not compromise it.

The report is a joint effort between the Pew Center on the States and Pew's Health and Human Services Program.

"Stronger standards from federal policy makers could have helped avert this crisis," said Shelley A. Hearne, managing director of Pew's Health and Human Services Program. "Future legislation must consider ways to strengthen standards to prevent more troubling loans from being made. Let's make certain federal laws build upon, rather than preempt, the strong and smart state efforts already underway and ensure that states retain flexibility to respond to local circumstances."

States are using a wide range of measures to try to prevent problematic loans frm being made in the first place. In North Carolina, lawmakers have passed some of the nation's most aggressive consumer protection laws that help assure that borrowers receive loans that meet their circumstances - through strong underwriting standards, such as requiring lenders to assess a borrower's ability to repay, not just at a loan's teaser rate, but also when that introductory rate adjusts.

Colorado, Maine, Massachusetts, Minnesota and Ohio have followed North Carolina's lead. Ten states, including Maine, Minnesota and North Carolina, ban most prepayment penalties, which are included in about 70 percent of all subprime loans. At least a dozen states have anti-predatory lending laws that regulate high-cost loans. And nine states, including Arkansas and South Carolina, require mortgage brokers to consider or represent the interests of the borrower when recommending mortgages.