To almost every housing counseling hotline in the region, the phone calls are incessant. Cuyahoga County's "Don't Borrow Trouble" 2-1-1 number alone received 1,400 last month. Cleveland's ESOP, one foreclosure prevention counseling agency, is answering 150 calls a week from borrowers, far more than it can actually help. The wait time to see a counselor used to be one day. Now it's one week.

"We're peddling as fast as we can," says Mark Wiseman, director of Cuyahoga County's Foreclosure Prevention Task Force and the 2-1-1 hotline.

And the deluge is still to come. That's because interest rates on adjustable rate mortgages (ARMs) are about to reset in coming months - to double, triple or quadruple from those low teaser rates. Throw in a credit crunch that will close off most opportunities to refinance, and falling housing prices, and it's likely that hundreds of thousands more will face foreclosure. Most will not be able to find help, and Cuyahoga County's foreclosure rate could climb even higher than the projected 17,000 for 2007.

Because so many debts have been auctioned off in bits and pieces to Wall Street investment trusts, it's difficult to help those with ARMs move to more affordable loans, with fixed interest rates, reduced principal balances, waived past-due payments and fees. Researchers have found that of all ARM loans that reset in January, April and July, only 1 percent had been modified.

Reaction from state and federal officials continues to give lenders and loan servicers the benefit of the doubt in the form of voluntary compacts and agreements to pick up the pace and increase the volume of loan modifications. But it's unclear what those things will accomplish.

In this climate, Cuyahoga County housing counselors, consumer advocates and government officials are gearing up to help their own and buy time for local borrowers staring down the barrel of an ARM reset and possible foreclosure. The group's been holding a series of informal brown bag-lunch sessions over the last two weeks, and has suddenly raised the possibility of transforming how Cuyahoga County's courts handle foreclosure cases.

Loss mitigation is when a lender helps a borrower avoid foreclosure, ideally by restructuring the terms of a loan in ways more beneficial to the homeowner.

The Federal Housing Administration, which insures loans from a list of pre-approved commercial lenders, has mandated since the late 1990s that all its lenders follow strict loss mitigation protocols. If a borrower begins to default, lenders must make direct contact and offer to waive fees, reduce interest rates or fix them, apply partial payments to the amount owed, and come out with a loan modification that keeps the borrower in the home. Foreclosure proceedings are allowed only after all other options have been exhausted. It's a proven strategy and one that has made FHA-backed loans among the most coveted in the country.

Commercial lenders, however, have been scrambling to assemble loss mitigation departments. And even when they do, nothing is mandatory, and the small staffs are poorly trained. The initiation of foreclosure filings remains at the discretion of the lender - a few days after default, or a few months - regardless of the borrower's condition or the lender's efforts. Actions that would alter the loan itself, like fixing or reducing interest rates, or waiving a portion of the principal balance, aren't usually considered.

Instead, servicers often go the route of suspending monthly payments until a borrower regains financial footing or spreading out past-due payments over a period of months - things that do more to maximize a failing loan's cash flow than to help the debtor keep his or her home.

Government officials like the Federal Reserve Bank, and even US Treasury Secretary Henry Paulson, have recently called on commercial lenders and servicers to step up the rate of meaningful loan modifications.

At the end of August, President Bush asked the FHA to refinance those families that previously had good credit histories but are now in default because of an ARM reset. The program, FHASecure, will help 240,000 families.

Then two weeks ago, Paulson announced HOPE NOW, an alliance of the nation's largest mortgage servicers, housing counseling agencies, and state and local officials. The partnership's main emphasis is increased outreach to borrowers in hopes of reducing ARM reset-related foreclosures. Through purely voluntary efforts, servicing partners have agreed to direct-mail information, and to expanding an existing network of housing counselors. But HOPE NOW has yet to spell out what will in fact be accomplished or how.

Federal regulators have also pushed new guidelines for modifications.

"Where appropriate, servicers are encouraged to apply loss mitigation techniques that result in mortgage obligations that the borrower can meet in a sustained manner over the long run," read the "Statement on Loss Mitigation Strategies for Servicers of Residential Mortgages" that was issued last month by the Federal Reserve Bank and five other bank regulators.

Whether commercial servicers will feel "encouraged to apply loss mitigation techniques" remains to be seen. But time is short. This year, more than $150 billion worth of ARMs have reset. Another $300 billion worth is coming down the pipeline for early 2008.

Sheila Baird, the chairman of the Federal Deposit Insurance Corp., which insures and oversees registered banks, uttered the strongest words to date on the potential impact of this. On October 4, Baird spoke at an investor conference: "We have a huge problem on our hands. We can't just sit here doing this kind of case-by-case, laborious restructuring process with all these millions of subprime hybrid ARMs," she said. "I think some categorical approaches are needed and needed urgently. Where the loan is current, just convert that subprime hybrid ARM into a fixed-rate mortgage. Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it."

(It's important to note that ARMs were never intended to be long-term loans. They were structured on the assumption that borrowers would replace them with fixed-rate mortgages before the high interest rates kicked in. But in recent years many borrowers weren't told that they were signing for ARMS, and other options have become harder to obtain.)

Ohio Gov. Ted Strickland is giving lending and servicing industry players one chance.

Last week, Strickland issued a voluntary "compact," which he's invited the likes of Countrywide, Ameriquest and Wells Fargo mortgage servicing companies to consider, give feedback on and sign. Strickland's compact (based on a set of recommendations from a foreclosure prevention task force he appointed) asks servicers to staff effective loss mitigation departments, contact at-risk borrowers, conduct loan workouts based on best practices like waiving fees, fix adjustable interest rates, and ensure that future monthly payments are realistic. To monitor progress, the governor will receive monthly reports that will include information on the types and percent of workouts.

Servicers had until October 22 to submit comments, and Strickland plans to release the official compact on November 8 for signatories.

"If this compact doesn't come through in the way [Strickland] intends," says press secretary Keith Dailey, "he's definitely looking to pursue legislation" that would mandate things like mandatory loan modification criteria and loss mitigation staffing requirements.

The Ohio General Assembly is still dominated by Republicans who've shown little regard for protecting consumers' rights in the past. So while Cuyahoga County Treasurer Jim Rokakis hopes Strickland's compact will succeed, he isn't waiting around for it. Rokakis has joined the brown-bag pow-wow lunches to see if a countywide plan can be put to work more immediately.

The group has thrown around several ideas, but finding something that sticks has been tricky. ESOP's Mark Seifert would like to see a temporary moratorium on ARM resets - something his organization is actively pushing, even with federal lawmakers. Then the country wouldn't be facing a reset crisis, and would have more time for reasonable, well thought-out loan modifications.

The county group even talked about a local moratorium. The idea was, what if county judges refused to accept foreclosure filings that were based on ARM resets? But the group quickly realized that higher interest rates aren't illegal, so judges have no legal basis on which to exempt such filings.

"That brings us to, what did you do to get here, to the point of [an ARM reset] foreclosure filing?" Seifert says. "We're not against [lenders] doing the foreclosure, we're against [lenders] being irresponsible."

The county group has more viable options on the table now, but isn't willing to go into too much detail just yet, says Rokakis.

Three meetings into what started out as creative brainstorming, however, the group is "trying to put together a plan," Rokakis admits. "We're examining potential steps we can take in the pre-foreclosure process at the Common Pleas Court level that gives the borrower more protection." That, Rokakis says, could mean working toward mediation and forcing the parties to come to a workout or forbearance agreement.

A fourth meeting has already been scheduled for this week.