Big Servicers Declare 30-Day Foreclosure Halt
Under the auspices of the Bush administration, six of the nation's largest residential servicers controlling almost 60% of the market in February unveiled a new program to freeze for 30 days all foreclosures - prime and subprime alike - on loans under their control.
The moratorium, however, does not apply to borrowers who already are in foreclosure, loans on "investor properties" or homes that are currently vacant.
The six participating lenders in the effort, dubbed Project Lifeline, include Bank of America, Citigroup, Countrywide Financial, JPMorgan Chase, Washington Mutual and Wells Fargo, which together service $5.4 trillion in outstanding residential loans, according to figures compiled by National Mortgage News and the Quarterly Data Report. (BoA is in the process of buying Countrywide, the nation's largest lender and servicer.)
Mark Zandi, chief economist for Moody's Economy.com, predicted that the effort will assist only a small fraction of the estimated 425,000 homeowners who are 90 days or more delinquent on their loans.
According to the QDR, roughly 8% of all subprime loans ($80 billion out of $1 trillion in outstandings) are in some form of foreclosure. Over the past five months, Wall Street firms, banks and others have written down the value of their subprime investments by roughly $120 billion.
Meanwhile, investors are concerned that if the nation's three largest bond insurers - Ambac, MBIA and FGIC - cannot stabilize their capital positions, the guarantees they issued on subprime-backed bonds will cause even greater writedowns.
Under Project Lifeline, the servicers will contact borrowers who are 90 days or more late and offer them a chance to put the foreclosure process on hold while trying to negotiate a way to restructure loan.
In some cases, if there's a teaser rate involved, the borrower may see that rate frozen for up to five years.
The six servicers are all part of the Hope Now alliance, an industry group that has been trying to find repayment solutions for subprime borrowers.
At a press conference last month unveiling the new program, Treasury secretary Henry Paulson noted that Project Lifeline and other efforts do not represent a "silver bullet that will undo the excesses of the past few years."
The Association of Community Organizations for Reform Now issued a statement calling the moratorium "a welcomed small step" but cautioned that it will not make a noticeable impact on the foreclosure crisis "unless more lenders and servicers move to automate workouts with affordable monthly payments."
Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, said Project Lifeline is a step in the right direction but urged Congress and the White House to pass his bill to create a Homeownership Preservation Corp. to purchase and workout troubled residential loans. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/