More than a million owners facing imminent loss of their homes were thrown a lifeline Tuesday by an alliance of banks and government agencies, but some experts said even more needs to be done to deal with the foreclosure crisis.A new plan to speed the rescue effort for those most in danger of losing their homes was unveiled at a Washington, D.C., news conference by the Federal Housing Finance Agency; Hope Now, a private banking alliance; Wells Fargo Bank; and Fannie Mae and Freddie Mac, the two government entities that hold 58 percent of the nation's single-family mortgages and 20 percent of serious delinquencies.
The plan is intended to speed up the process of modifying mortgages to make them more affordable with the goal of keeping more people in their homes.
Citibank, a member of the Hope Now alliance, announced its own plan Tuesday to reach out to people not yet in arrears on their loans but who may need help. The bank said it will do "workouts" - negotiating with borrowers to modify their mortgages - for 500,000 homeowners who have mortgage loans from Citibank. Also, Citibank said it will not start foreclosure on "any eligible borrower" who is trying to stay in their principal residence and has enough income to make affordable mortgage payments. The bank said it has already helped 370,000 families avoid foreclosure.
Two companies that track foreclosures reported big drops Tuesday, reflecting a trend since banks began working with borrowers to keep them in their homes. Foreclosures.com reported a 22 percent drop nationally from September to October, and ForeclosureRadar said California foreclosures were down 39 percent for that period.
But foreclosures have increased almost 150 percent in the past two years, FHFA director James B. Lockhart said at the news conference announcing the new government-industry initiative. "We need to stop this downward spiral," he said.
The foreclosure crisis has broad implications for the economy, prompting the government and private sector to take extraordinary steps to halt it.
Foreclosures bring down home values, which leads to more foreclosures. And with job losses mounting, experts expect another wave of defaults.
Under the new plan, lenders will speed up the loan modification process for borrowers who are 90 days or more late on their mortgage payments and whose loans are serviced by Fannie Mae or Freddie Mac or participating lenders and loan servicers - all the member banks. Qualifying homeowners will be allowed to make monthly payments of no more than 38 percent of their monthly income, achieved through extending the repayment period, reducing the interest rate or lowering the principal.
The plan creates consistent rules for modifying loans and adds staffing to deal with the crush of requests for help. Hope Now described it as a "systematic and uniform approach" to what many banks are already doing. "We are not creating a new federal program here," said Steve Bartlett, president and chief executive of the Financial Services Roundtable, a banking trade group that is the primary sponsor of Hope Now. "We've identified this group of people who are 90 days delinquent, and we realize we have to process their modifications faster," Bartlett said in an interview. He said more than a million people are that far behind on their loan payments. The owners of these loans are Fannie and Freddie and the major banks, he said.
But Federal Deposit Insurance Corp. Chairman Sheila Bair said in a statement that the plan "is a step in the right direction but falls short of what is needed to achieve wide-scale modifications of distressed mortgages." Bair has recommended using some of the $700 billion bailout to modify mortgages. The plan announced Tuesday does not use any of that money; losses will be absorbed by companies and homeowners.
Many lenders have announced their own loan-modification programs. They include Bank of America, which inherited a huge subprime loan portfolio when it acquired Countrywide Home Loans; JP Morgan Chase, which took over Washington Mutual; and IndyMac, which was seized by the FDIC in July.
The FDIC's loan-modification program for IndyMac subprime borrowers has served as a model for other lenders, as well as for Hope Now.
"What's important is that the program recognizes household debt level and income," said Douglas Robinson, a spokesman for NeighborWorks America, a national network of community developers and affordable housing agencies. "Ability to pay is a critical piece of this that we think is a very important initial step."
But not everyone is convinced. "I'm disappointed," said Doug Jones, who operates Mortgage Magic in San Jose. Jones said the problem is that many San Jose-area homeowners who got loans with little verification of their income won't be able to make even the modified payments.
Jones has been helping people modify their mortgages, but complained that it has been "a knock-down, drag-out struggle" to get banks to do so. "If a customer is not past due, they encourage in a subtle way for the customer to get past due and then they'll help them. That's horrible." By Pete Carey (c) Mercury News, San Jose 2008.
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