Feb. 19 (Bloomberg) -- Mortgage companies including Fannie Mae and HSBC Finance joined a U.S. Treasury Department-led effort to offer 30-day foreclosure freezes to give delinquent borrowers more time to arrange payment plans.

Remaining members of the Hope Now alliance adopted the initiative announced last week by Treasury Secretary Henry Paulson and six banks, including JPMorgan Chase & Co. and Citigroup Inc., the group said today in Washington. The coalition of lenders, loan-servicing companies and counselors formed last year as foreclosures surged in the subprime crisis.

``This is an effort to address the personal distress that a number of borrowers find themselves in,'' said Oliver Ireland, partner in the financial services group at Morrison & Foerster LLP in Washington. ``It sounds to me like a step in the right direction.''

``Project Lifeline'' expands on a Treasury-brokered agreement with mortgage servicers to freeze interest rates for five years on some adjustable subprime mortgages. The new effort directs struggling borrowers with subprime, ``Alt-A'' and prime loans to contact servicers to work out payment plans.

Hope Now members, comprising more than 90 percent of the market for servicing subprime loans and almost 70 percent of all mortgage servicers, will adopt the plan by March 31, the group said. Mortgage servicers collect and process loan payments.

Initial Participants

Besides Citigroup and JPMorgan Chase, Bank of America Corp., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. initially agreed to participate in the effort. Washington-based Fannie Mae is the largest source of U.S. home- loan money; HSBC Finance is the U.S. subprime consumer-banking unit of London-based HSBC Holdings Plc.

The program will start with a letter to homeowners more than 90 days delinquent that lays out procedures to qualify for a ``pause'' in the foreclosure process. The homeowner will have 10 days to respond so the servicer can weigh payment options.

Project Lifeline ``is one more means of helping homeowners, and combined with the other parts of Hope Now's outreach, these initiatives can make a measurable difference,'' Paulson said today in an e-mailed statement.

The initiative is an ``ineffective tool'' and an affront to borrowers who ``constrained their expenditures and worked hard to pay their loans on time,'' said Joseph Mason, an associate finance professor at Drexel University in Philadelphia.

`Leaving It Alone'

``They really should be leaving it alone,'' Mason said. ``Certain loans are going to be economical to modify and others are not. Regulators have to come to terms with the fact that some substantial portion of mortgage loans cannot be rescued.''

Some servicers who've signed onto the Hope Now effort said they are already using the program's approach.

Option One Mortgage Corp. ``has a strong commitment to helping borrowers who are struggling with their payments,'' said Christine Sullivan, a spokeswoman for the H&R Block Inc. subsidiary. ``We have already implemented Project Lifeline because it's another tool that helps us reach out to our borrowers and keep them in their homes.''

HSBC spokeswoman Kate Durham said the company has had such a program in place since 2004 ``as part of our broad range of homeownership-preservation solutions.''

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: February 19, 2008 17:19 EST