A lifeline for delinquent mortgage borrowers
Then both sides would have a few weeks to reach an agreement of some kind. Options would include a workout, in which the borrower pays extra each month and catches up on the late payments over time, or a modification, in which the rate or terms of the loan are changed. In rare cases, a modification could even include some debt forgiveness if the borrower owes more than the house is worth.
Band-Aid, not a cure
But none of this is new. The exact same options are available after the borrower is 30 days and then 60 days past due. Mortgage servicers say their biggest problem is that they can't get in touch with delinquent borrowers. In about half of foreclosures, the borrower never communicates with the lender, despite the mortgage company's efforts.
At the 90-day delinquency period, borrowers "probably have gotten multiple letters from the lenders at this point. They've probably gotten multiple phone calls from the banks," says Lisa Breier Urban, a real estate lawyer in New York City. "It's possible that the tone will be softer in the Project Lifeline letter that will be sent out, and perhaps that will enable the consumer to want to respond to it."
Urban says she thinks that any help that the federal government can give to homeowners is beneficial.
"That being said, I'm not really sure a 30-day grace period for people who are in foreclosure is sufficient time to work out the terms of a deal. To me, it sounds more like a Band-Aid than an actual remedy. You're giving people a 30-day grace period, but what if you can't work something out? What then?"
Presumably, the deadlines aren't airtight. Few lenders
are going to hang up on a borrower for calling two weeks after getting
the letter, instead of responding within 10 days. Bottom line, Paulson
says: "These are homeowners on the brink of losing their homes.
The way I look at it is, everyone we save makes a difference."
Consumer help still murky
There are no details on what kinds of mortgage rescue options will be offered. Floyd Robinson, president of Bank of America's consumer real estate division, says, "We'll look at the individual circumstances and what we believe is appropriate."
Urban says: "I would have liked to have seen a structuring or some sort of guidelines in terms of what they were going to offer the consumer."
Jim Carr, chief operating officer of the National Community Reinvestment Coalition, calls Project Lifeline "a small step in the right direction" and, like Urban, wishes it were more ambitious. The NCRC proposes that the federal government buy delinquent loans from lenders at a steep discount "and make them available to servicers to actually go in and do what needs to be done to make those loans work."
In some cases where homeowners owe more than their houses are worth, part of the debt should be forgiven and the loan refinanced,
Carr says. The notion of "short refinances" has been championed by at least one mortgage broker as well as by Sheila Bair, the chairman of the Federal Deposit Insurance Corp.