Marcy Gordon
USA Today
A foreclosure sign tops a sale sign outside an existing home on the market in northwest Denver. A new plan backed by the Treasury Department and HUD would pause foreclosure proceedings for borrowers who are more than 90 days delinquent while lenders study whether payments can be made under new terms.
WASHINGTON — Six large mortgage lenders and servicers launched a program Tuesday aimed at staving off foreclosure for delinquent borrowers in the hopes that more affordable loan terms can be worked out.
“Project Lifeline,” backed by the U.S. Treasury and the Department of Housing and Urban Development, would pause foreclosure proceedings for borrowers who are more than 90 days in arrears while lenders determine whether they could make payments under new terms.
The new effort will cover all types of home loans, unlike an earlier plan aimed at freezing interest rates for subprime mortgage holders who cannot afford rates that reset to higher levels.
The plan initially involves six of the largest mortgage lenders, in hopes more will sign on. The participants are Bank of America, Citigroup, Countrywide Financial, JPMorgan Chase, Washington Mutual and Wells Fargo, who say together they service about half the mortgages in the USA.
All six are already involved in Hope Now, the effort the Bush administration brokered with the mortgage industry late last year to freeze rates on some subprime mortgages for five years. Since then, Treasury Secretary Henry Paulson has urged lenders to expand that effort to cover struggling homeowners with conventional mortgages.
With home prices falling, even some people with good credit have gotten behind on their payments. Like many subprime borrowers, they signed up for adjustable-rate mortgages that allowed them to make smaller, steady payments for several years until a higher adjustable interest rate kicked in.
Some borrowed against their rising equity as home prices climbed, assuming they would be able to refinance or sell their homes before higher payments began. But as prices have plummeted, many homeowners now owe more than their home is worth, and banks have tightened their lending practices, leaving even people with stellar credit struggling with higher payments.
The Hope Now alliance, which includes lenders, investors and non-profit groups, said last week that it helped nearly 8% of subprime borrowers in the second half of 2007 — more than its original estimate.
The group said it helped 545,000 subprime borrowers with spotty credit in the second half last year, compared with its January estimate of 370,000. That works out to 7.7% of 7.1 million subprime loans outstanding as of September.
Among the subprime borrowers, 150,000 were helped through permanent-loan modifications, such as lower interest rates, while 395,000 negotiated repayment plans, which often involve a borrower getting back on track after missing a few payments.
Consumer groups, however, point out that many borrowers still can’t keep up, even after loan workouts. They say rather than a workout, a full-fledged refinancing at a lower rate is preferable.