foreclosures freeze

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Paulson, Banks Announce 30-Day Freeze on Foreclosures

 -- Bank of America Corp., Citigroup Inc. and four other U.S. lenders announced new steps to help borrowers in danger of foreclosure stay in their homes.

Treasury Secretary Henry Paulson and the banks offered a 30-day freeze on some foreclosures while loan modifications are considered. Paulson and U.S. Housing and Urban Development Secretary Alphonso Jackson said today at a news conference in Washington that ``Project Lifeline'' would help stabilize communities disrupted by mortgage defaults.

By Alison Vekshin found Feb. 12 2008 at Bloomberg

``Project Lifeline has the potential to offer new solutions to responsible, able homeowners who want to keep their homes,'' Paulson said. ``As our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures.''

In a statement, the banks said the program would start with a letter to homeowners more than 90 days delinquent on payments that lays out procedures for them to ``pause'' the foreclosure process. The homeowner has 10 days to respond to the notice and give additional financial information so the lender is able to weigh new payment options.

Subprime, Alt-A and prime borrowers are eligible, according to the plan. Subprime mortgages are made to borrowers with poor credit or high debt. Alt-A loans are sold to borrowers who want atypical terms, such as proof of income waivers or investment- property collateral, without sufficient compensating attributes, such as larger down payments.

JPMorgan, Wells Fargo

JPMorgan Chase & Co., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. will also participate in the plan. All six are members of Hope Now, the alliance of lenders, trade groups and counselors formed last year to head off a surge of foreclosures by identifying and working with borrowers struggling to meet higher payments.

The Treasury chief said the six banks account for half of the U.S. mortgage market, and called on other lenders to adopt the plan as well.

Paulson, who as recently as last month opposed a moratorium on foreclosures, wants lenders to go beyond earlier pledges to freeze subprime interest rates for five years. The deepest housing slump in a generation is threatening consumer spending and the job market, pushing the economy to the verge of a recession.

Jackson said the plan is a ``responsible, timely effort'' aimed at encouraging borrowers to come forward if they're having trouble making payments.

`Huge Disconnect'

``There is this huge disconnect between what is being represented by the industry and what is being experienced on the ground,'' said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based housing activist group. ``Borrowers are falling through the cracks while more and more of these press releases come out. It's clearly not enough.''

Paulson last week heard complaints from Democrats in Congress that the number of homeowners receiving relief so far has been insufficient. ``We are now in the midst of one of the most serious economic crises we have seen in recent years,'' Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, said in a speech in Boston yesterday.

2 Million

Federal Reserve officials project about 2 million homeowners face higher mortgage rates over the next two years as their loans reset higher. Economists at the Federal Deposit Insurance Corp. estimate foreclosures this year will be about 1 million more than average, a level that FDIC Chairman Sheila Bair has said ``is just too high.'' They average about 600,000 in a typical year.

``This is good, but we've seen this over and over again,'' said Kathleen Day, a spokeswoman for the Center for Responsible Lending in Washington. ``The fact that they keep having to roll out subsequent rescue plans every few weeks underscores that each plan is inadequate.''

Declining house prices have made it harder for some borrowers to refinance as the value of their homes drops, in some cases below the amount of their mortgages. Sales of existing homes fell the most in 25 years last year and values dropped for the first time since the Great Depression.

``The housing correction, high energy prices, and capital market turmoil have combined to weigh on near-term growth,'' Paulson said at the conclusion of a weekend meeting of Group of Seven finance ministers and central bankers in Tokyo.

December Agreement

The accord among the six banks is the latest effort backed by the Bush administration to rescue troubled borrowers, and followed a week of talks between lenders and officials. In December, Paulson negotiated a deal that would freeze rates on some subprime loans for five years.

Democratic Senator Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, is exploring the creation of a federal program to buy and restructure delinquent and near-delinquent loans ``to help many borrowers as quickly as possible.'' Frank has also favored the proposal.

The mortgage industry has been under growing pressure from federal bank regulators to step up efforts to modify troubled loans, even after the Hope Now agreement to freeze rates for some subprime borrowers. Bair has cited a November Moody's Investors Service report showing only 3.5 percent of loans that reset in the first eight months of 2007 have been modified.

Hope Now released an industry survey last week showing that U.S. mortgage servicers helped 545,000 subprime borrowers keep their homes by setting up repayment plans or altering loans in the second half of last year.

Bill Longbrake, the Financial Services Roundtable's senior policy adviser and the report's author, said the survey showed servicers helped more borrowers as the year progressed. Consumer advocates said loan modifications and repayment plans don't go far enough.

``These borrowers need to be refinanced into fixed-rate affordable loans,'' Jim Carr, chief operating officer at the Washington-based National Community Reinvestment Coalition, said last week.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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