In an effort to avoid some of those foreclosures, Attorney General Tom Miller said his office has set up a hotline and program to enable borrowers to negotiate new loan terms through a mediator.

Miller said the current crisis in home mortgage failures reminded him of the farm crisis of the 1980s. At that time, lenders foreclosed on thousands of farmers who saw land values and farm income plummet, leaving many with heavy debt and loans they could not repay.

The private nonprofit Iowa Mediation Service Inc. helped renegotiate thousands of loans between farmers and lenders in the 1980s, saving many farms from foreclosure, Miller said.

Miller's office has contracted with the service to work with home loan companies and borrowers on restructuring mortgages to offer alternatives to foreclosure.

Miller said Iowa has the fourth highest rate of mortgage foreclosures in the nation at 8.6 percent. His office said that figure is based on numbers from the Mortgage Bankers Association.

Data released Sept. 6 for the quarter ending June 30 indicated that of 30,616 subprime loans serviced in the quarter, more than 2,600 loans were in foreclosure. About 11.8 percent of the borrowers were seriously behind on payments and 14.5 percent were past due.

"The foreclosure crisis will only get worse before it gets better," Miller said.

The culprit primarily is adjustable-rate mortgages, loans that carry low payments in the first two years but ratchet up payments in subsequent years to the point where many borrowers can no longer pay.

"Borrowers suffer payment shock when their monthly payments shoot up hundreds of dollars and just keep climbing," he said. "They can't make the payments and they face foreclosure."

Miller said many subprime lenders engaged in fraud or deception, including appraising homes at higher values than their actual worth. In many cases lenders offered money to borrowers who didn't have the financial resources to repay, a practice now prohibited by federal rules and in many states.

Miller's office has provided $4,500 to Iowa Mediation Service to begin working on cases and to set up a hotline for borrowers who think they're in trouble. It's 877-622-4866.

The money came from payments made to Iowa by Ameriquest Mortgage Co. The company settled a national consumer fraud lawsuit alleging various illegal mortgage lending practices.

Many people facing foreclosure don't contact their lender until they're already into foreclosure, said Mike Thompson, director of Iowa Mediation Service.

"It's emotional and when you have that emotionality you're going to get a disconnect and part of what we're going to do is find a way to reconnect them with lenders to see if we can't find ways to resolve these issues," Thompson said.

Typically the solution will be to restructure the loan to a fixed rate that is affordable for the borrower and offers reasonable repayment for the lender, who avoids the expense and loss incurred through foreclosure.

Miller said he has organized a 10-state task force to meet with mortgage servicing companies and investors to find ways for them to modify more troubled subprime loans instead of foreclosing.

Meetings are scheduled for this month and next month in Chicago.

He said the national effort paralleled the Iowa project because it is driven by the principle that borrowers, lenders, investors, and mortgage servicing companies all have an interest in avoiding foreclosure.

"We are appealing to everyone's enlightened self-interest," Miller said.