6 lenders to slow down foreclosures

The housing crisis is goin
to get worse, the treasury secretary warned.

MARKETWATCH

CHICAGO — In the latest move aimed at halting a swelling and steady flow of mortgage foreclosures, six of the nation’s largest mortgage lenders bowed to government pressure and joined forces Tuesday to give all homeowners who are seriously delinquent on their loans another chance.

The lenders have agreed to freeze foreclosures for a month to give borrowers and lenders time to work out a repayment plan.

Named Project Lifeline, the initiative is a step-by-step approach for homeowners who are 90 days or more behind in their mortgage payments, a circumstance that already puts them in serious risk of losing their homes. These borrowers — many of whom have not contacted their lender — could begin receiving letters from them as soon as this week.

The program is not a solution to the housing crisis but is considered a “pause” in the foreclosure process, giving homeowners an extra 30 days to work out a payment or modification program. Some 1.3 million home loans are either seriously delinquent — meaning 90 days or more — or already in foreclosure, according to the Mortgage Bankers Association.

“None of these efforts are a silver bullet that will undo the excesses of the past years, nor are they designed to bail out real estate speculators or those who committed fraud,” Treasury Secretary Henry Paulson said in announcing the program.

“These efforts are to help American families who both want to and can, through a loan modification or refinancing, stay in their homes,” he added.

He warned, however, that the worst of the housing crisis is still ahead as holders of subprime mortgages come up for interest-rate resets.

Lehman Bros. has estimated that about 2.8 million subprime mortgages will reset this year and next at a rate that is 30 percent higher than the so-called “teaser” rate. The investment bankers also forecast foreclosures to shoot up to about 1 million this year and next, quadruple last year’s level.

The Lifeline program gives the lenders more time — and presumably a better chance — to work through the volumes of troubled loans they face. Many have indicated that they simply don’t have the manpower to handle all the business.

Paulson was joined by Housing and Urban Development Secretary Alphonso Jackson in unveiling the plan that includes mortgage servicers from Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Countrywide Financial Corp., Washington Mutual Inc. and Wells Fargo & Co., which represent a staggering 50 percent of the mortgage market.

“Project Lifeline is aimed at homeowners who face a real risk of losing their home but have not yet addressed the problem,” Paulson said. “For whatever reasons, they have not yet taken action. Our hope is that today’s announcement will reach them and they will reach out immediately for help, especially now that the foreclosure process is upon them.”

Reaching out doesn’t guarantee a loan revision. Homeowners must provide updated financial information that includes income and other debt that the servicer will use to determine if a workout is doable.

If one is created and the homeowner stays true to the workout for three straight months, the loan will be formally modified.