Bush offers plan to reduce foreclosures
Under it, six financial institutions would give a 30-day stop so homeowners could try to craft affordable terms.
WASHINGTON - Homeowners threatened with foreclosure would in some instances get a 30-day reprieve under an initiative the Bush administration announced yesterday. Critics said the proposal was far short of what was needed.
Under the new program, six of the nation's largest financial institutions said they would begin contacting homeowners who are 90 or more days overdue on their monthly mortgage payments. The homeowners will be given the opportunity to put the foreclosure process on pause for 30 days while the lenders look for a way to make the mortgage more affordable.
The new program will be available to the holders of all types of mortgages, from prime to subprime. It represents a widening of an initiative President Bush announced in December that offers a freeze on subprime-mortgage rates that are scheduled to reset to sharply higher rates for borrowers who qualify for the assistance.
While saying the 30-day pause in the foreclosure process was not a silver bullet, Treasury Secretary Henry M. Paulson Jr. said it could give borrowers valuable time to work out refinancing terms with their lenders. However, lenders would not be required to offer more favorable terms than they are already offering to borrowers in trouble.
Critics said much more assistance would be needed to prevent what was expected to be a tidal wave of foreclosures. Celia Chen, director of housing economics for Moody's Economy.com, of West Chester, Pa., said the plan likely "will only whittle away at the mounting number of foreclosures."
"Homeowners at risk of foreclosure are floating 50 feet from shore while Project Lifeline throws them a 30-foot rope," said Sen. Richard Durbin (D., Ill.). He is pushing legislation that would let homeowners facing foreclosure alter the terms of their mortgages in bankruptcy proceedings to make payments more affordable.
Sen. Charles Schumer (D., N.Y.) said the administration's latest effort did not address the fact that more than 30 percent of homeowners who bought in the last two years owe more on their mortgages than their houses are now worth, and said the problem would not be adequately addressed until lenders cut down on the borrowers' debt.
The current crisis reflects the steepest slump in housing in more than two decades.
Homeowners who had counted on being able to refinance adjustable-rate mortgages before they reset to sharply higher rates have been caught in the downturn.
The slump in housing has spread to the overall economy, raising fears of a possible recession. Paulson said the $168 billion economic-stimulus package that Bush is to sign today plus the administration's various housing initiatives would help to jump-start economic activity.
The 30-day mortgage moratorium effort will begin with letters sent by the six financial institutions to homeowners who are seriously delinquent on their mortgage payments, asking them to contact their mortgage-service provider.
To be considered for the 30-day foreclosure moratorium and a possible loan modification, the homeowners will have to contact their mortgage-servicing company at a phone number provided in the letter.
Homeowners would not qualify for the moratorium if they are already in bankruptcy, if they have a foreclosure sales date fewer than 30 days away, or if the home had been purchased as an investment property or was not occupied at the current time.
The six banks are Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., JPMorgan Chase & Co., Washington Mutual Inc., and Wells Fargo & Co. They account for 50 percent of the mortgage-servicing market.
They are members of the Hope Now Alliance, an industry group. Officials urged homeowners to call the group's toll-free hotline number at 1-888-995-4673 for assistance.