Dr. Raynor teaches finance at the State University of New York at Delhi, and is periodically a visiting professor at Universidad Catholica Santo Toribio De Mogrovejo in Peru. He has worked on a number of projects in other areas of Latin America, and was also a visiting professor in China. He is especially interested in international trade and labor issues, and has previous private sector experience in the banking industry.

By all accounts, the sub-prime mortgage crisis will make 2008 another very challenging year for homeowners. There are thousands of heartbreaking stories about those unfortunate enough to be facing foreclosure. Even those that are getting by are adversely impacted. The problem seems to deteriorate daily, proving many of the pundits wrong who months ago said, the sub-prime sector was a tiny percentage of the housing market, and the bottom was in sight.

If you are one of the homeowners in distress, there are several things to keep in mind that may help. Or, perhaps you are doing well, but a relative or neighbor down the street is having difficulty. Passing this information along may help him or her, but it could also help protect your home or neighborhood values as well.

While they may not be visible to everyone yet, organized efforts are finally underway. At the state level, many, like California, are developing relief initiatives. At the local level, city mayors are also meeting to develop common strategies for homeowner assistance.

What should you do if you are currently behind on your mortgage payments and facing foreclosure? A few points are important to keep in mind:

1. Generally, banks do not like to foreclose on properties. I worked in the banking industry for several years and know from experience that it's usually not in the lender's best interest to foreclose. When they foreclose, lenders often take properties that are in need of repair, because homeowners who can't keep up with monthly payments most likely have not kept up with maintenance either.

Also, carrying costs are significant. The lender may have to heat the house in the winter and keep other utilities on so structural damage does not occur. The lender may be concerned about property security or vandalism if the house is vacant. When a lender eventually auctions off the property, s/he almost certainly will not get enough money to clear the mortgage balance, especially in this high inventory market. While the lender may sue the borrower for the difference, it is often futile, since the borrower is broke anyway.

2. There is an old saying: "If you owe the bank $1000, the bank owns you. But if you owe the bank $1,000,000, you own the bank." The meaning, of course, is that once the bank has significant exposure, it often needs to "play ball" with you and negotiate a win-win solution. While you may not owe the bank $1,000,000 on your mortgage, banks have massive exposure just by sheer numbers. Thus, it only takes you and four others owing 200k each, for the bank suddenly to have that $1 million exposure. That gets multiplied by thousands of homeowners with similar problems, totaling billions of dollars. The bottom line: individuals in this situation may have much more bargaining power than they often realize.

3. Communication pays off. If you are in trouble with your mortgage lender, contact him/her as soon as possible. In these unprecedented times, banks have set up work-out departments consisting of specialists who will work with you to help solve your problem. Your lender may be able to refinance your mortgage with terms you can afford, often with little or no money out of your pocket. Again, looking at it from a lendersą point-of-view, the last thing they want to do is foreclose and auction off yet another property at a loss, especially in this market.

If your lender is not cooperative or willing to assist, you may be better off voluntarily surrendering the property. By demonstrating that you are not bluffing, this alone is sometimes enough to trigger action. You will need to convince the bank they need for this to work more than you do, which is true most of the time. If the lender still won't cooperate, then it may be inevitable that this just wonąt work with them.

Again the good news, is that more and more lenders are coming to the realization that cooperating on a mutually advantageous solution is in their best interest. Also, a new market is emerging for other lenders that have specialized in refinancing sub-prime and adjustable rate mortgages (ARMs). Ditech is one example. For details, go to Ditech.com.

4. Make sure to establish a paper trail via written correspondence, and use certified letters whenever appropriate. That way, if foreclosure does occur, there is a track record showing it was you who was trying to cooperate, and it was the lender that was being unresponsive. Make sure to document all other communication with dates, names, and important details.

5. Do you really want to keep the property, or should you? If you are significantly upside-down on your loan (owe more than what the property is worth), even refinancing with a cooperative lender may never recoup your loss. If you have lost your job, or are facing other extenuating circumstances (divorce, etc.), beyond an out-of-control mortgage, then refinancing into another loan that you can't afford, also won't help.

Here, a short-sale might be better, if your lender will agree to it. A short-sale occurs when the lender agrees to accept a reduced sale price to pay off the mortgage in full. For example, suppose that a few years ago you bought a property for $300,000 with 10% down ($30,000), and mortgaged the difference of $270,000. Assuming that your 270k mortgage balance has not declined significantly, and that your house under current market conditions is now worth $230,000, you are upside down by $40,000. In a short-sale, the lender allows you to sell the house for $230,000 and accepts that as a payoff for the mortgage, instead of $270,000.

If you are facing mortgage loan default, one thing to keep in mind is that there are millions more people potentially facing the same problem. And, almost every home-owner is adversely impacted by current market conditions. Thus, while not much of a consolation now, be reassured you're certainly not alone.

Dr. Raynor is a finance professor at the State University of New York at Delhi and a 2007-08 member of the Association for Institutional Research