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New Program Designed To Help Homeowners Facing Foreclosure

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By RENAE MERLE, The Washington Post

Published: February 13, 2008

WASHINGTON - The Bush administration and six large mortgage lenders unveiled a plan Tuesday to offer 30-day reprieves to some homeowners facing foreclosure.

The program, targeting homeowners 90 or more days late on payments, is the industry's latest attempt to untangle the mess caused by years of lax mortgage standards.

These homeowners will receive a letter offering a "pause" in the foreclosure process to try to work out a repayment schedule.
Delinquent borrowers always have had the option of calling their lender for help in advance of a foreclosure. But the foreclosure process typically continued during those talks. Under this plan, there would be a 30-day freeze in the process.

Unlike a government-endorsed rescue effort announced last year, the new program, called Project Lifeline, is not limited to subprime mortgages, home loans given to borrowers with weak credit. It also includes foreclosures triggered by home-equity loans, prime loans and second liens.

Modifications to loans would be made on a case-by-case basis, and not all eligible loans are expected to be salvageable, industry officials said.

Homeowners in bankruptcy protection will not be eligible for the program, which also excludes vacant and investment properties. The offer also will not apply to borrowers whose homes are scheduled for a foreclosure sale within 30 days.

The program could resonate in Florida, which last year had one of the highest home foreclosure rates in the nation.

Florida No. 2 In Country

RealtyTrac, a California-based company that monitors foreclosure activity, ranked Florida second in the country for foreclosures in 2007. The company says more than 2 percent of households in the state entered some stage of foreclosure during the year. Statewide there were foreclosure-related filings on 165,291 properties.

The Tampa Bay area's 2007 foreclosure rate mirrored the state with about 2 percent of households entering foreclosure, RealtyTrac said. Almost 24,000 properties fell into foreclosure in Hillsborough, Pinellas, Pasco and Hernando counties in 2007. That was double the 2006 figure.

"None of these efforts are a silver bullet that will undo the excesses of the past years," Treasury Secretary Henry Paulson said. For example, the program won't help borrowers who put down little or no money and who don't want to continue to live in the house, he said.

Countrywide Financial, Bank of America, Citigroup, JPMorgan Chase, Washington Mutual and Wells Fargo are participating in Project Lifeline. They are also members of the Hope Now Alliance, the industry-financed nonprofit group that has been coordinating efforts to reach struggling subprime mortgage borrowers.

"For some homeowners, that extra time will make the difference," said Floyd Robinson, president of consumer real estate at Bank of America.

The plan is a good-faith effort by lenders to reach out to delinquent borrowers, said Alex Pollock, a resident fellow at the American Enterprise Institute, a conservative policy research and advocacy group. "It seems to be a quite a reasonable, sensible program to be done along with other things," he said. "There is obviously a lot of thinking going on."

Critics: Plan Falls Short

Critics said the plan is far short of what is needed to stem the tide of foreclosures, which cost lenders millions and is expected to increase as subprime borrowers face interest rate increases on adjustable-rate mortgages. The national foreclosure rate rose more than 50 percent last year.

"The industry and the administration are running to catch up as fast as they can to a problem that is getting broader and deeper by the day, but they seem to be falling further and further behind," Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said.

Giving borrowers an extra 30 days is prudent but common measure, said John Taylor, head of the National Community Reinvestment Coalition. "A lot of the industry under normal circumstances tries to avoid foreclosure and work with the borrower," he said. "The real problem is that most of these borrowers are in properties that are not worth what the mortgage is. They are locked into a loan they can no longer afford. This program doesn't get at any of that."

He said: "You can give them 60 more days, or 90 days. If there isn't a product that they can be refinanced into that matches their ability to pay, then we're really not going to be helping eight out of 10 people."

The plan will likely aid a small portion of some 425,000 homeowners 90 days or more delinquent on loans, said Mark Zandi, chief economist at Moody's Economy.com.

PARTICIPATING LENDERS

•Bank of America Corp.

•Citigroup

•Countrywide Financial Corp.

•JPMorgan Chase & Co.

•Washington Mutual

•Wells Fargo & Company

All are members of the Hope Now Alliance, an industry group that is trying to coordinate a response to the mortgage crisis. The group has a toll-free hot line number for assistance: 1-888-995-HOPE.

WHO WON'T QUALIFY

•Homeowners who have entered bankruptcy protection.

•Homeowners who already have a foreclosure date within 30 days.

•Homeowners whose loan was taken out to cover an investment property or vacation home.

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