Government Creates Project Lifeline To Help Get Homeowner Back On Track
The Treasury Department, Urban Development, and the Department of Housing are gathering this week to announce a way to help at risk borrowers who have different types of mortgages (not narrowed down to high cost mortgages and subprime loans) may be eligible for the new Project Lifeline. This project will give homeowners who are seriously overdue a 30 day suspension of a foreclosure for lenders to work out a loan that is more affordable for them.
On a pilot basis, the plan will involve six of the largest mortgage lenders, in hopes that more lenders will sign on. The participants are Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., JPMorgan Chase & Co., Washington Mutual Inc. and Wells Fargo & Co. All six are involved in Hope Now, an effort the Bush administration brokered with the mortgage industry late last year to freeze rates on some high-cost subprime mortgages for five years to aid borrowers whose teaser rates are jumping sharply higher. Since then, Treasury Secretary Henry Paulson has urged lenders to expand that effort to cover struggling homeowners with conventional mortgages.
The new plan applies to seriously delinquent homeowners, those whose mortgages are 90 days or more past due.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 fluctuating 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 the 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 nonprofit groups, said last week that it helped nearly 8 percent 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 of last year, compared with its January estimate of 370,000. That works out to 7.7 percent of 7.1 million subprime loans outstanding as of September.
Among the subprime borrowers aided, 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 even after missing a few payments.