Mortgage Rescue Effort Announced

By Gregg D. Killoren, J.D., State Banking Law Reporter and Individual Retirement Plans Guide.

Six of the largest U.S. mortgage lenders have announced that they will increase efforts to rescue homeowners on the brink of foreclosure. Having been prodded by the Bush administration, Bank of America Corp., Citigroup, Inc., Countrywide Financial Corp., J.P. Morgan Chase & Co., Washington Mutual, and Wells Fargo & Co. will join to promote a rescue program dubbed " Project Lifeline." The goal of the plan is for loan servicers to send a letter to borrowers who are 90 days or more past due on their mortgage payments stating that if the borrower contacts the servicer within 10 days, agrees to homeowner counseling and provides financial documentation, the servicer may consider modifying the mortgage terms on a case-by-case basis. The homeowners who respond to the letter will be allowed to put the foreclosure process on hold for 30 days while the lender attempts to create a workout plan to make the loan more affordable.

Unlike previous efforts to assist homeowners in financial trouble on subprime loans, this program seeks to rescue homeowners who borrowed under all types of loan programs, not just subprime loans. According to the Mortgage Bankers Association, at least 1.3 million home-mortgage loans were either seriously delinquent or in foreclosure at the end of the third quarter. However, not all of these loans would qualify for the program. Among homeowners who will not be eligible for the program are those who are currently in bankruptcy, have a foreclosure date that is within 30 days, or whose loan was for the purchase or refinance of vacant or investment property.

Certain nonprofit groups would like to see the mortgage industry do more for struggling homeowners. The Center for Responsible Lending, a nonprofit research group based in Washington, issued a statement in which the organization referred to Project Lifeline as "a small step that isn't likely to make a significant difference for the hundreds of thousands of homeowners who are at risk of losing their home." The organization stated that lenders should move more aggressively to reduce loan balances to current home values and make monthly payments affordable.