By Jeremy Grant in Washington
Published: February 12 2008 20:20 Last updated: February 12 2008 20:20
Saying “the worst is just beginning” for a wave of subprime mortgage resets in the US, Treasury secretary Henry Paulson on Tuesday unveiled an initiative with six private sector banks to delay home foreclosures.
The initiative, called Project Lifeline, targets homeowners who are 90 days or more behind on their mortgage payments and offers them a 30-day “pause” in the foreclosure process.
The announcement comes four months after the administration established the Hope Now alliance, its first response to stemming the rate of subprime mortgage resets faced by millions of distressed homeowners.
A report by a group of state attorneys-general last week concluded that two-thirds of borrowers who were behind on payments in October received no workout help from the industry. Robert Steel, undersecretary for domestic finance, recently told a Senate committee hearing that progress on Hope Now had been “inadequate” until recently.
A separate report from Hope Now last week said 68 per cent of delinquent borrowers were helped across the second half of last year.
Christopher Dodd, senate banking committee chairman, last month proposed the establishment of a federal entity that would buy outstanding, near-delinquent mortgages at steep discounts and transfer the discount to homeowners through new, lower-balance loans.
Project Lifeline involves Bank of America, JP Morgan Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo. It includes borrowers with better credit histories than those typically locked into subprime mortgages – a sign the administration is concerned about resets affecting “alt-A” loans, which do not require full documentation, as well.
Mr Paulson said Project Lifeline was aimed at homeowners “who face a real risk of losing their home, but have not yet addressed the problem”. It was “just one of the many steps” that the administration had planned since Hope Now.
But Mr Dodd said: “This plan, while a step in the right direction, will not stem the tide of the millions of foreclosures we are facing in the coming months.”
Mortgage servicers have been reluctant to take advantage of Hope Now because they fear liability exposure by modifying loan conditions.
John Taylor, president of the National Community Re-investment Coalition, a non-profit trade association, said a related issue was likely to affect Project Lifeline.
“The majority of the problem loans we are talking about . . . were not originated by these [six] banks. They will need to get permission from their shareholders to modify those loans. So far that’s proved difficult.”
Published: February 12 2008 20:20 Last updated: February 12 2008 20:20
Saying “the worst is just beginning” for a wave of subprime mortgage resets in the US, Treasury secretary Henry Paulson on Tuesday unveiled an initiative with six private sector banks to delay home foreclosures.
The initiative, called Project Lifeline, targets homeowners who are 90 days or more behind on their mortgage payments and offers them a 30-day “pause” in the foreclosure process.
The announcement comes four months after the administration established the Hope Now alliance, its first response to stemming the rate of subprime mortgage resets faced by millions of distressed homeowners.
A report by a group of state attorneys-general last week concluded that two-thirds of borrowers who were behind on payments in October received no workout help from the industry. Robert Steel, undersecretary for domestic finance, recently told a Senate committee hearing that progress on Hope Now had been “inadequate” until recently.
A separate report from Hope Now last week said 68 per cent of delinquent borrowers were helped across the second half of last year.
Christopher Dodd, senate banking committee chairman, last month proposed the establishment of a federal entity that would buy outstanding, near-delinquent mortgages at steep discounts and transfer the discount to homeowners through new, lower-balance loans.
Project Lifeline involves Bank of America, JP Morgan Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo. It includes borrowers with better credit histories than those typically locked into subprime mortgages – a sign the administration is concerned about resets affecting “alt-A” loans, which do not require full documentation, as well.
Mr Paulson said Project Lifeline was aimed at homeowners “who face a real risk of losing their home, but have not yet addressed the problem”. It was “just one of the many steps” that the administration had planned since Hope Now.
But Mr Dodd said: “This plan, while a step in the right direction, will not stem the tide of the millions of foreclosures we are facing in the coming months.”
Mortgage servicers have been reluctant to take advantage of Hope Now because they fear liability exposure by modifying loan conditions.
John Taylor, president of the National Community Re-investment Coalition, a non-profit trade association, said a related issue was likely to affect Project Lifeline.
“The majority of the problem loans we are talking about . . . were not originated by these [six] banks. They will need to get permission from their shareholders to modify those loans. So far that’s proved difficult.”
Copyright The Financial Times Limited 2008
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