The new initiative, in which six major lenders agree to delay foreclosure in some cases, represents business as usual for the banks, and little relief for homeowners
As the foreclosure mess worsens, there's mounting public pressure for stronger action to keep people from losing their homes. But President Bush and his Cabinet have resisted the more aggressive forms of intervention, preferring to rely on the private sector as much as possible. That's raising questions about whether the White House is fully aware of the severity of the housing crisis.
The Bush Administration's latest initiative, Project Lifeline, exemplifies its hands-off approach to the workings of the market. In fact, it's not a government program at all. It's a statement of intent by six major lenders—Bank of America (BAC), Citigroup (C), Countrywide Financial (CFC), JPMorgan Chase (JPM), Washington Mutual (WM), and Wells Fargo (WFC)—that they will stop the clock on foreclosure for 30 days for borrowers who are identified by the lenders as good candidates for a home-saving workout. The banks, in the words of a Bank of America press release, "will target severely delinquent borrowers to encourage them to respond to their mortgage servicer and pursue loan modification options."
Predictably, Project Lifeline was quickly attacked by critics as too little, too late. Senator Richard Durbin (D-Ill.) issued a statement saying: "Homeowners at risk of foreclosure are floating 50 feet from shore while Project Lifeline throws them a 30-foot rope."
A Transparent Project
Actually, Project Lifeline isn't a new rope at all. Lenders have already been patient with people who appear to have a reasonable shot of making mortgage payments, simply because the banks don't want to repossess large numbers of houses, especially in this soft market. In a Feb. 15 interview, BofA spokesman Terry Francisco acknowledged that the bank would not be making any major change to what it has already been doing. "Here, all six of us are banding together on the same step-by-step approach. We're trying to make it transparent and easy to understand," he says.
There's no sign the White House is throwing much weight behind the private-sector proposal, either. It doesn't appear to be mentioned at all on the Web site of the Housing & Urban Development Dept., even though HUD Secretary Alphonso Jackson was one of the people who announced it. It is only mentioned briefly in a statement on the Treasury Dept.'s site. And Google search for "Project Lifeline" on Feb. 15 turned up no site for the project—though it did offer one for an organization that assists "communities that are suffering from an inadequate supply of water and poor sanitation caused by war, poverty, and natural disaster."
Project Lifeline appears even less substantial than Hope Now, an earlier Bush Administration initiative aimed at more credit-worthy borrowers. Treasury Secretary Henry Paulson has refused to say how many people benefited from loan workouts arranged through Hope Now. Only about 10,000 delinquent borrowers have even been advised to seek workouts in the past two months via a hotline (888 995-HOPE), The Wall Street Journal reported, citing the nonprofit Homeownership Preservation Foundation, which operates the hotline.
The foundation, which pre-dates the Hope Now initiative, told the Journal that hotline counselors recommended a workout for 9,975 borrowers, told 4,410 people to "seriously consider selling their home," and referred 12,113 borrowers for in-person counseling and services such as job-placement help. That's a tiny fraction of the millions of people who are struggling to make payments or have become delinquent on their home mortgages.
HUD spokesman Steve O'Halloran says the Bush Administration's initiatives are working and helping people save their homes. But to critics, the problem with relying on purely private solutions is that lenders simply can't do much more than they're already doing without jeopardizing their own profitability. Critics argue that given the impact on the entire country, including neighbors whose home values are dragged down by foreclosures on the block, the mortgage crisis requires a national solution.
The Center for American Progress, a Democratic-leaning think tank, is pushing a two-part plan. One part would have Fannie Mae (FNM), Freddie Mac (FRE), and Federal Housing Authority lenders buy up big pools of mortgage-backed securities at a discount and then replace the underlying mortgages of eligible borrowers with new, affordable fixed-rate, 30-year loans. The other part would make government grants to nonprofits to buy foreclosed properties in stricken neighborhoods, fix them up, and rent them out.
Senator Durbin, who made the crack about Project Lifeline being 20 feet too short, has introduced a bill that would change the bankruptcy code to allow homeowners to restructure unaffordable mortgages through a Chapter 13 bankruptcy filing. On Feb. 15, Durbin announced that provisions of his bill have been folded into the Democratic foreclosure prevention package that will be debated when the Senate reconvenes later this month.