In the 1980s, there was Black Monday, and the early 2000s brought the dot-com bust. Now, 2007's mortgage meltdown may rival the magnitude of those market fiascos.

The subprime upheaval has sent a shock through the nation's lending system, creating a surge in the number of workers seeking advice and services from their employer's group legal plan.

Adam Gotskind, corporate counsel and director of legal services with ComPsych, says there has been a huge increase in calls from people needing legal advice on risky loans they've taken on. "They're saying they can't pay their bills; that's where it starts," Gotskind remarks. "They can't afford to pay their mortgage, and they simply don't know where to begin."

Employers are beginning to promote legal services at an increased clip in an attempt to quell employees concern over housing issues. ComPsych estimates the number of mortgage-related calls they've received have nearly doubled in a year, from 9% in the first nine months of 2006 to 17% in the same period in 2007.

Most legal plans offer bankruptcy, debt collection defense, foreclosure and document review services to help employees navigate the jumbled mortgage market. Bill Brooks, CEO of Hyatt Legal Plans in Cleveland, says documentation review and preparation for mortgage-related services is up 55% in the first nine months of 2007 compared to the same period in 2006. This tells him that people, more than ever, are keen on getting their mortgage papers reviewed before they find themselves in hot water.

"That's the biggest increase of any benefit we have," says Brooks. Hiring an attorney is not cheap, Brooks points out, which is why the presence of a group legal plan and financial consultation service is so important right now to those affected by the housing crisis. "Someone who has debt problems is the last person who can afford an attorney, and yet they're the ones who really need one," Brooks says. "A legal plan makes it affordable."

Market deterioration

The mortgage financial crisis has spawned largely from the poor repayment rates of subprime loans, which are loans made to borrowers who generally do not qualify for market interest rates because of problems with their credit history or inability to show equity that matches the loan's value.

Home sales and prices have steadily declined and foreclosure activity nearly doubled in the past year. According to the Mortgage Asset Research Institute, cases of mortgage fraud grew to 28,000 last year, up from just 3,500 in 2000. Residential purchase mortgage originations will decline about 15% in 2007 to $1.18 trillion from $1.4 trillion in 2006, states the Mortgage Bankers Association.

As a result, adjustable loan rates have reset at often higher values, increasing the amount of mortgages by several hundred dollars in some cases. This puts a load of stress on a lot of people, and they're looking to their group legal plans for assistance.

"Some people's mortgages have jumped by $500 to $1,500 a month," remarks Brad Barron, founder and CEO of CLC Inc., based in Granite Bay, Calif. "In the last year, things have really deteriorated, and it's caught up to the financial institutions. The banks have started to withdraw their more creative loan programs."

Barron says he's seen a "ten-fold increase in the past five to six months" in the number of people seeking mortgage assistance services through their employer's group legal plan. Several of his attorneys have become accredited mortgage planning specialists to better handle the request for services.

"There are a lot of options for people in [mortgage] predicaments that can be beneficial for protecting their credit rating and overall financial status," say Barron. "We try to provide people as much constructive help as possible before they file for bankruptcy protection."

Problem could expand

According to a study this year by Russell Research for the ARAG Group, a provider of legal insurance plans based in Des Moines, Iowa, seven in 10 U.S. workers experienced at least one legal life event in the past 12 months.

Finance-related issues included credit trouble/debt collection, bankruptcy, credit card theft, IRS audit/collection, tax disputes, identity theft and estate planning. "If a company winds up with an employee who has a crisis with regard to their living situation ... that employee most likely won't be productive," says Barron. "There is an ever-increasing demand from the employers for assistance in this area."

There are indications that the mortgage meltdown is not going to get any better, at least not in the near future. According to a Government Accountability Office report, approximately 1.1 million foreclosures are expected in the next six to seven years due to aggressive lending practices and fluctuating home prices. In addition, the Mortgage Bankers Association reported that new home sales declined 22% in 2007 compared to 2006, with an additional decline of 10% expected in 2008.

Says Gotskind, "These mortgage rates are not necessarily going to go down, they could continue to go up, so the problem could get worse. Our view is that it's not going to get better anytime sooner."