You may think there's a race to prove the largest possible loss caused by the mortgage mess and credit crisis. Goldman Sachs (NYSE: GS) believes the loss could reach $2 trillion in lending, according to Bloomberg this morning. Jan Hatzius, chief economist at Goldman Sachs in New York, estimates that losses related to foreclosures could be as high as $400 billion for financial companies. This loss will be compounded as banks and hedge funds scale bank lending.

Hatzius calculated the loss stated in his report using this assumption: "A $1 mortgage credit loss could result in a reduction in lending by significantly more than $10." So even if one believes that only $200 billion will be lost, half of the actual estimates, that translates to a $2 trillion cut in lending. The first bank to estimate the total loss from foreclosures at $400 billion was Deutsche Bank, as I discussed earlier this week.

Losses already on the books at major financial companies total $50 billion from the mortgage mess and more are expected by the end of the year. If something is not done quickly to stem the tide of foreclosures, the potential loss could be even greater as Option ARMs reset in 2009 and 2010. Option ARMs are a prime mortgage product, not a subprime product. So far the foreclosures have primarily been in the subprime mortgage market.

Yesterday I wrote about a ruling in an Ohio court that stopped 14 foreclosures because Deutsche Bank (NYSE: DB) did not have paperwork to prove that it actually owned the properties it was trying to seize. If this spreads to other courtrooms around the country, the losses could go even higher. It's time for financial institutions to get as creative in their packages to fix the problem and find ways for people to stay in their homes as they were when they created these ridiculous mortgage schemes that led us into this mess.

Lita Epstein has written more than 20 books including, "The 250 Questions You Should Ask to Avoid Foreclosure" and the soon to be released "Complete Idiot's Guide to Improving Your Credit Score."