Major Lenders Offer Help to Struggling Homeowners

WASHINGTON — Six major lenders, worried about the deepening mortgage crisis, said Tuesday they would grant a 30-day freeze on many foreclosures in order to consider delinquent borrowers' pleas for lower monthly payments.

Standing with bank representatives, Treasury Secretary Henry Paulson said Project Lifeline is needed because the two-year-old mortgage mess is still threatening to separate many Americans from their homes.

"The worst isn't over," Paulson said. In fact, "the worst is just beginning."

Paulson, along with Housing and Urban Development Secretary Alphonso Jackson, held a news conference to call attention to the program. They urged other lenders to participate, and borrowers to step up.

"If someone is willing to make a call, to reach out, (then) there's a chance they can save their home," Paulson said.

Jackson called Project Lifeline a "responsible, timely effort" to curb the foreclosures that have been unnerving financial markets and weighing down the U.S. economy.

The six lenders — Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. — have designed the program to help any homeowner in trouble, not just subprime borrowers.

They have agreed to immediately send letters to homeowners more than 90 days delinquent on their house payments. The letter would spell out the procedures for borrowers to "pause" the foreclosure process.

The homeowner would have 10 days to respond and provide additional financial information. The lender could use that information to consider new payment options. In some case, foreclosures would go forward, but in others, lower payments might be worked out.

The lenders could not say exactly how many people might get new loan terms, but said "hundreds of thousands" of homeowners are at least 90 days delinquent in their payments.

The six lenders, which account for about half of the U.S. mortgage market, are members of the Hope Now alliance of lenders, trade groups and counselors. The group was formed last year to identify struggling borrowers and help them find ways to avoid foreclosure.

Paulson has opposed calls for a mandated, across-the-board moratorium on foreclosures. But in December, he negotiated a deal to freeze rates for five years on some subprime loans. He now wants lenders to go further by lowering loan terms for the long term, even on some mortgages not rated as subprime.

Floyd Robinson, who heads Bank of America's mortgage business, said the program relies upon borrowers stepping forward to develop workout plans. "Homeowners can only take advantage of this program by taking action — they must respond when they hear from us," he said.

Many Democrats and public-interest groups have been critical of the Bush administration for not doing more, sooner to address the problems tied to the subprime lending practices that flourished in 2002 through 2005.

During that time, many lenders offered mortgages to "subprime" borrowers — those with spotty credit histories or irregular income. Typically, the loans offered low initial interest rates to hold down the monthly cost. But over time, the rates ratcheted up.

Over the past two years, millions of loans have been resetting to much higher rates, making it impossible for some homeowners to keep up. As a result, foreclosures have soared, driving down home prices as properties sit vacant. In 2007, home values fell nationwide for the first time since the Great Depression.

The Federal Reserve estimates about 2 million more homeowners will face rising monthly payments over the next two years as their loans reset to higher interest rates.

Critics say the voluntary plans backed by the White House are too limited to have much of an impact on an enormous problem. For example, the Center for Responsible Lending in Washington says that in the third quarter of 2007, lenders initiated about 213,000 foreclosures on subprime loans, but offered meaningful loan "modifications" on only 28,000.

John Taylor, president of the National Community Reinvestment Coalition, dismissed the Hope Now efforts as inadequate. "Borrowers need help now, not just more hope," Taylor said in a statement. "Almost weekly announcements about small successes and minor program modifications confirm the program is not working."

Taylor's group, composed of more than 600 community-based organizations, says it wants the federal government to purchase, at a discount, the mortgages held in securitized pools. Once the government holds the loan portfolio, it could reduce all of the loan terms "in a meaningful way to create long-term affordability," the group says.

Although Paulson enthusiastically endorses the voluntary efforts the White House has been promoting, he acknowledged the problems are profound. "None of these efforts are a silver bullet that will undo the excesses of the past years," he said.

PROJECT LIFELINE: HOW IT WORKS

The new program from six major lenders lets qualifying homeowners "pause" the foreclosure process. Other lenders are free to join.

WHO'S PARTICIPATING

Bank of America, Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo

WHICH LOANS QUALIFY

All home loans that are 90 days delinquent and that are not:

— In active bankruptcy

— In active foreclosure with sale date less than 30 days

— Where the homeowner has indicated a desire to give up the home

— Investment properties

— Vacant properties

STEPS IN THE PROCESS

1. Call your mortgage servicer.

2. Tell your servicer you have received their letter, you wish to stay in your home and you are willing to seek counseling.

3. Provide updated financial information.

4. If appropriate, a pending foreclosure may be paused for up to 30 days while a review takes place and a new payment plan is created.

5. If the homeowner follows the new plan for three months, the loan will be formally modified.

Source: HOPE NOW Alliance