Mortgage 'lifeline' falls short, critics say

Pennsylvania Foreclosure & Real Estate News

By Chris Togneri

The Bush administration announced a program Tuesday aimed at helping homeowners stave off foreclosure, but critics say the plan will not solve the worsening housing crisis.

The initiative -- dubbed "Project Lifeline" -- would stall foreclosure proceedings for some delinquent borrowers while they negotiate more favorable terms with lenders.

Under the plan, six major financial institutions will send a letter to homeowners who fall 90 days or more behind on their mortgage payments. The homeowners will have 10 days to call a phone number on the letter, triggering a 30-day pause on foreclosure proceedings while they seek a more manageable deal.

"There are homeowners on the brink of losing their homes," U.S. Treasury Secretary Henry Paulson said during a news conference in Washington. "The way I look at it is every one we save will make a difference."

The plan will have little impact locally, Allegheny County Sheriff Bill Mullen said.

"We're already doing this, and we've been doing this," he said.

Mullen said sheriff's officials advise homeowners to ask a judge for a 30-day delay if their home is in danger of being auctioned in a sheriff's sale. The delay is almost always granted, he said, giving homeowners the time to renegotiate their loan, even if the homeowner is five or six months late on payments.

"It's a gesture, it's a move in the right direction," Mullen said of Project Lifeline. "But I don't think it will have an impact on anything in this area."

Maryellen Hayden, lead organizer for the Association of Community Organizations for Reform Now, which advises homeowners in danger of losing their houses in Western Pennsylvania, said she is worried that struggling homeowners who get the 30-day delay will renegotiate an equally unfavorable deal.

"It is not advisable for them to negotiate with their lender -- that's what got them in trouble in the first place," Hayden said. "To me, that seems like a problem."

Other critics nationwide said the program falls far short of what is needed.

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

The six lenders participating in Project Lifeline are: Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., J.P. Morgan Chase and Co., Washington Mutual Inc. and Wells Fargo & Co.

Paulson said he will encourage all lenders to join.

But many Pittsburgh-area banks said they were not prepared to adopt the 30-day moratorium. Bank officials said they already have policies in place to aid troubled borrowers trying to avoid foreclosure.

"If you run into a (payment) problem, we contact you and take steps to help you get back on track," said James Carroll Jr., vice president of Dollar Bank. "We've done this for over 20 years."

National City Bank spokesman William Eiler said he had not seen the details of Project Lifeline, but that the bank already offers similar assistance, such as postponing foreclosure proceedings for 30 days or more.

The crisis reflects the steepest slump in housing in more than two decades, a severe downturn that followed a five-year boom during which home sales and prices hit record levels.

Homeowners who had counted on being able to refinance their adjustable-rate mortgages before they reset to sharply higher rates have been caught in the sharp downturn as home sales and prices have plunged in many parts of the country.

The slump in housing has spread to the overall economy, pulling growth to a near-standstill in the final three months of last year and raising fears of a possible recession.

Paulson said the $168 billion economic stimulus package that President Bush will sign today, plus the administration's various housing initiatives, would all help to jump-start economic activity.

He said that the "worst isn't over" yet for housing in terms of the estimated 1.8 million subprime mortgages -- loans offered to borrowers with weak credit histories -- that are scheduled to reset to sharply higher rates over the next two years.

The Mortgage Bankers Association reported that at least 1.3 million home mortgage loans were either seriously delinquent or in foreclosure at the end of the July-September quarter. Private economists are forecasting that the number of foreclosures could soar to 1 million this year and next, about double the 2007 rate.

Officials could not say how many people might be helped by Project Lifeline.

In Allegheny County, few people will be saved by the initiative, ACORN's Hayden said.

"We already have these processes here," she said. "We've been doing this for four or five years."

 

 

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