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As we've been hearing, some of the nation's largest home lenders are being sued for allegedly filing fraudulent foreclosure documents. Banks are now delaying foreclosures, and some lawmakers want to temporarily halt are all foreclosures. NPR's Chris Arnold tells us what this could mean for homeowners in financial trouble, as well as the larger economy.

CHRIS ARNOLD: Around the country, homeowners on the verge of foreclosure are trying to figure out whether this latest blowup is going to give them some more time. Some are still fighting to hang onto their houses, but others at this point have given up and are basically just living in their houses for free.

SHIRLEY SARGENT: I don't need to live in this big a place. I can't afford it.

ARNOLD: Shirley Sargent is sitting in the living room of her spacious, two- story house in a recently built subdivision in southern Maine. She owes close to $300,000 on it, and she got the original loan from Countrywide.

SARGENT: I thought it would be a good investment. I honestly did. I liked the neighborhood. I liked the proximity to the turnpike.

ARNOLD: But then Sargent lost her job. She had worked in the mortgage industry, actually. She's now 64 years old and working two retail jobs and making less money. For a while, she paid her mortgage and her own health insurance, but soon, she'd wiped out her savings.

SARGENT: I must have gone through $30,000.

ARNOLD: So, back in 2008, Sargent gave up paying her mortgage, and she called up the mortgage company and told them that.

SARGENT: I said I'll happily turn the keys over to you if that's what you want.

ARNOLD: But even before this latest mortgage industry snafu, the gears of the foreclosure machine were turning very slowly, and the bank still has not taken back Sargent's house. At one point, Countrywide sent her a letter about having lost some of her documents. And even after Bank of America bought Countrywide...

SARGENT: They kind of forgot about me for a while, which was kind of nice, 'cause I got to stay for a couple of years, you know?

ARNOLD: Yeah. I mean, so, you've been here for two years and you haven't made a single mortgage payment basically, right?

SARGENT: No.

ARNOLD: Sargent said she did anything the lender asked her to do. She's maintained the property. She's tried to find a buyer for a short sale.

SARGENT: I've done everything that I possibly can to make the bank happy, except pay the bill.

(SOUNDBITE OF LAUGHTER)

ARNOLD: That's kind of a big thing.

SARGENT: That really makes them happy.

ARNOLD: Now, Sargent appears close to the end. She has a court hearing in a week that's likely to result in a foreclosure. But Bank of America has been halting foreclosures around the country. And so that could mean that people like Sargent get even more time to live in these homes for free.

ANTHONY SANDERS: It's not free. Somebody has to pay.

ARNOLD: Anthony Sanders is a finance professor at George Mason University. He says foreclosures dragging on too long already cost the overall the overall financial system billions of dollars. So, he is completely against calls for a nationwide moratorium to stop all foreclosures. He says that that would be very bad for the housing market and the economy.

SANDERS: Oh, yeah. And the longer this drags out, the worse it's going to get. The average time to foreclosure or liquidation of these assets is 17 months.

ARNOLD: That is a long time, but housing advocates say that those are 17 highly dysfunctional months.

John and Nancy Longval are homeowners in Maine who have had their income cut back in the recession. But they still make enough money to pay their mortgage if it was at a reduced interest rate. And so they should qualify for what's called a loan modification. And for two years now, they've been trying to get one.

NANCY LONGVAL: We'd send in the paperwork. I faxed everything that they asked for. Well, the next day, someone else would call. They'd say we need more paperwork.

JOHN LONGVAL: We'd send it in, and then they'd say, well, we've lost that one.

LONGVAL: Could not talk to the same person. Nobody knew who was doing what.

ARNOLD: John Longval's a former construction worker. He and his wife worked and saved their whole lives for this house, and they put 20 percent down when they bought it.

LONGVAL: It's a dream home to us.

ARNOLD: But now it turns out there's something new that's helping. The state of Maine has started a so-called mandatory mediation program. That requires lenders to send a representative to meet with homeowner and their lawyer or counselor, and to try to work out a plan in person with a mediator.

Chris Larosh is the Longvals' housing counselor.

CHRIS LAROSH: As a result of the Longvals filing a response and requesting a mandatory mediation, CitiMortgage responded within a couple of weeks with a permanent modification.

ARNOLD: In other words, Larosh says, this mediation effort is working. And he's hopeful that all the attention on foreclosures right now will go beyond the legal paperwork questions and create momentum to get promising efforts like this one up and running in other states.

Chris Arnold, NPR News.

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