Delinquent Homeowners Get a New "Lifeline"

Six of the big mortgage companies involved the Hope NOW Alliance announced that the Alliance is expanding its efforts to help homeowners facing foreclosure.

The rate freeze program announced by President Bush in December applied only to borrowers who were facing resets on subprime adjustable rate mortgages but who were current, in fact had never been delinquent, on their mortgage payments.

The new program dubbed Project Lifeline extends earlier Hope NOW efforts to include those who are seriously delinquent whether their problems are with subprime, Alt A or prime loans and will even assist those in foreclosure with second mortgages or home equity lines.

EARLIER THIS WEEK, the Bush administration announced yet another effort to bail out struggling homeowners. Dubbed "Project Lifeline," the plan aims to help a previously-ignored segment of the population: those who are severely delinquent on their payments. At best, however, the plan offers a very minor fix to a very major problem.

Backed by six of the industry's largest lenders, Bank of America (BAC: 41.77, -0.47, -1.11%), Chase (CCF: 26.26, -0.19, -0.71%), Citigroup (C: 25.51, -0.23, -0.89%), Countrywide (CFC: 6.85, -0.07, -1.01%), Washington Mutual (WM: 16.56, -0.30, -1.77%) and Wells Fargo (WFC: 29.19, -0.40, -1.35%), Project Lifeline will give homeowners who are delinquent on their loans by 90 days or more a 30-day reprieve on foreclosure proceedings. The goal is to allow them additional time to work out a payment plan with their lenders and keep their homes. While few details are available — according to documents provided by the participating lenders, a homeowner's eligibility will be decided on a case-by-case basis — the plan notably stipulates that it will reach out to prime and Alt-A borrowers, who were excluded from the Bush administration's "teaser freezer" plan announced in December.

Housing advocates, however, are far from optimistic that this new initiative will really help the millions of homeowners facing foreclosure in the years ahead. "The plan is widened to include people who are seriously delinquent. That's good and should have been done months ago," says Jim Carr, chief operating officer at the National Community Reinvestment Coalition, a consumer group. "Will it help some people? Yes. But will it be a significant step in resolving the crisis — absolutely not."

The biggest snag is the limited 30-day window that homeowners have to seek help from their lender. "It perhaps gives servicers a little more time, and probably a prodding to borrowers to contact them," says Guy Cecala, publisher of Insider Mortgage Finance, a trade publication for the mortgage servicing industry. "But in the grand scheme of things 30 days is not enough to solve a mortgage problem."

Typically, when housing counselors and homeowners negotiate loan modifications it can take weeks, if not months to reach a solution, says Diane Cipollone, an attorney with Maryland-based consumer group Civil Justice, who helps homeowners and housing counselors speed up loan modification cases that have hit a roadblock with servicers. The process requires a frustrating daisy chain of phone calls and time spent waiting for approvals from higher-ups. And all too often, the borrower sends all requested information to start the modification process and the lender fails to respond. When contacted again, the lender says they have no record of receiving the documents. "You have no choice but to re-submit," she notes.

And if understaffing was a concern before, it's even more of a problem now, as a growing number of homeowners seek help. Loan servicing operations are almost completely automated and not set up to handle calls from thousands, if not millions of homeowners whose situations are reviewed on a case-by-case basis, Cecala explains. He estimates servicers would have to handle roughly 8,000 calls a day in order to help all borrowers who need it. "You can't hire enough people to do it and you're not motivated to hire people to do it because you're not getting paid," he says.