AUGUSTA -- A bill that sets up a mediation program designed to help people avoid foreclosure earned final House and Senate approval Wednesday.

Rep. Sharon Treat, D-Hallowell, said the measure will provide counseling for those facing foreclosure and make it easier for them to navigate the court system.

"It's going to make a huge difference in people's lives who are facing this," she said.

The bill sets up a hotline, makes it easier for those facing foreclosure to ask for a court-supervised meeting, and gives homeowners a chance to negotiate new terms so they can stay in their homes, Treat said.

It's modeled after a successful program in Connecticut, she said. More than half of the people who go through it stay in their homes.

The bill is supported by lenders and consumer advocates, along with the state court system.

John Murphy, president of the Maine Credit Union League, said the new process will work well for lenders.

"Neither the lender nor the consumer benefit if the consumer is forced out of their home," he said.

A report released this week by the Judicial Branch Commission on Foreclosure Diversion shows that foreclosures in Maine were up 46.5 percent from 2007 to 2008. In raw numbers, foreclosure court filings reached 5,293 in 2008 and the number is projected to grow to more than 5,500 this year, according to the report.

The new program will be funded by court-filing fees and the addition of real-estate-transfer taxes on homes bought at a foreclosure auction.

Treat said the system will provide more funding when there are more foreclosures, and less when the number drops.

Carla Dickstein, of Coastal Enterprises Inc., said many people who go through the foreclosure process have trouble tracking down the primary-note holder because banks often sell their mortgages. This bill requires someone with the authority to renegotiate the terms of the mortgage to participate in a meeting with the homeowner, whether in person, by phone or electronically.

"We think the mediation process is the best thing we can do to get people facing foreclosure to get a loan modification," she said.

Dickstein said her organization, a private, nonprofit community-development corporation, is looking for federal funds to hire more housing counselors to work with people going through the foreclosure process.

Mary Ann Lynch, director of information for the Maine Judicial Branch, said helping people avoid foreclosure will also help neighbors who often see a loss of property value when homes are abandoned.

She said the court system will roll out the program in southern Maine first, where foreclosure filings are highest, and will have something in place statewide by January.

"The public will benefit," she said. "Maybe even the courts, if we can solve things in mediation."

Treat said while the first wave of foreclosures hit many with subprime mortgages, the next wave is hitting those with good credit who lose their jobs.

"Now regular mortgages are more and more threatened," she said.

Susan Cover -- 620-7015

scover@centralmaine.com