Not Just Subprime
Six big lenders, representing half the nation's mortgage market, have agreed to offer a 30-day freeze on foreclosure proceedings while services try to determine if new terms can be worked out.
As outlined by Treasury Secretary Henry Paulson, the plan, Project Lifeline, is an extension of the Hope Now Alliance program announced in November. It calls for lenders to send letters to homeowners more than 90 days delinquent on payments. The homeowner has 10 days to respond, and in some cases they will get a pause in the foreclosure process so that new terms can be worked out.
The new effort is not just for subprime home loans, but for all mortgages. It reflects the reality of the deep and seemingly intractable slump in the housing market, as many homeowners find their home debt is greater than the value of their house.
Mark Zandi, an economist with Moody's, has estimated that three million loans will default this year and next. Some two million of those will end in foreclosure and sale.
But equally significant has been a shift in homeowners' attitudes toward their homes. Many believe that refinancing will not help and are willing to walk away from their homes.
Bankers have been struggling to deal with that new reality. As Ken Lewis, the chief executive of Bank of America, told the Wall Street Journal in December, "There's been a change in social attitudes toward default."
Paulson today acknowledged that "of course there will be homeowners who still take no action, and some will simply walk away from their mortgage."
"No program can bring every struggling borrower into the counseling and evaluation process, and we cannot help those who choose not to honor their obligations," he said. "But Project Lifeline has the potential to offer new solutions to responsible, able homeowners who want to keep their homes."
The Calculated Risk blog is skeptical, to say the least, saying that the only difference between Project lifeline "and the way the loss mitigation process has always worked is . . . the letter part."
"What is implied here is that servicers are, in fact, staffed up to do these time- and labor-intensive modifications that include real examination of the borrower's circumstances, real counseling, and loan changes that are much harder to process than just a teaser freeze," the blog entry continues. "They're just waiting by the phone for borrowers to call. Why am I skeptical about that?"
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