At the heart of our economy's troubles is the housing market. As the federal financial rescue plan is implemented, it's important to focus on homeowners facing foreclosure.

About 5 percent of American mortgages, or more than three million homeowners, will go into default this year. Philadelphia's market mirrors this dismal statistic: Over the past 18 months, 5.7 percent of the area's home mortgages have gone into default. Last year, Philadelphia had 5,296 foreclosures.

These numbers represent only part of the problem. Foreclosures harm property values throughout a neighborhood, and lost local tax revenues may force cuts in city services.

We need to keep people in their homes when foreclosure is avoidable. Sen. Bob Casey (D., Pa.) and I are holding a Senate Judiciary Committee field hearing in Philadelphia today to explore ways to do that.

One promising program started in Philadelphia. The Residential Mortgage Foreclosure Diversion Program uses city resources to help homeowners and lenders reach agreements that head off foreclosure. Hundreds of attorneys are volunteering their services in representing homeowners and serving as mediators.

Spearheaded by President Judge Darnell Jones and Judge Annette Rizzo of the Philadelphia Court of Common Pleas, the city program requires lenders to come to the table to meet with homeowners and their lawyers before there can be a sheriff's sale. It also makes homeowners aware of state and federal assistance that may be available. The program has prevented or delayed foreclosure in nearly 80 percent of the 552 cases that have gone into mediation.

Some troubled mortgages are the result of predatory lending or irresponsible borrowing. But the program has also helped homeowners who have experienced unexpected unemployment or illness. Deluged with mail and paperwork, they sometimes need nothing more than guidance.

Lenders, for their part, need to make sure they have the staff to work with homeowners, counselors and lawyers. Furthermore, because many of the volunteer lawyers work for firms that represent banks, the banks must waive conflict-of-interest rules to facilitate their pro bono work.

The $700 billion economic rescue package was a bitter pill to swallow. I voted for it, reluctantly, because the cost of not acting would have been much higher.

So far, federal legislation has been focused on the financial system. But I have been concerned about homeowners. Until we address the foreclosure situation, we will be unable to stabilize property values, banks will be reluctant to write new mortgages, and large financial institutions will continue to take write-downs on mortgage-backed securities.

We need action at the local and national levels to get credit flowing again and prevent further harm to families and businesses.

I believe what is happening in Philadelphia is working. Similar programs nationwide could restore trust and stability to the housing market.

Arlen Specter can be contacted via