U.S. Banks, Paulson Plan New Bid to Cut Mortgage Foreclosures
Feb. 12 (Bloomberg) -- Bank of America Corp., Citigroup Inc. and four other U.S. lenders will announce new steps today to help some borrowers in danger of default stay in their homes, according to three people familiar with the plans.
Encouraged by Treasury Secretary Henry Paulson, the banks will offer a 30-day freeze on foreclosures while loan modifications are considered, two people said on condition of anonymity. The initiative, which follows a week of talks with Bush administration officials, will apply to customers who are at least three months late on payments and include prime borrowers, as well as those with poorer credit histories.
Paulson, who as recently as last month opposed a moratorium on foreclosures, is pushing lenders to go beyond earlier pledges to freeze subprime interest rates for five years. The deepest housing slump in a generation is threatening consumer spending and the job market, pushing the economy to the verge of a recession.
``There is this huge disconnect between what is being represented by the industry and what is being experienced on the ground,'' said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based housing activist group. ``Borrowers are falling through the cracks while more and more of these press releases come out. It's clearly not enough.''
JPMorgan, Wells Fargo
JPMorgan Chase & Co., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. will also participate in the plan, known as Project Lifeline, the two people said. All six are members of Hope Now, the alliance of lenders, servicers and counselors formed last year to head off a surge of foreclosures.
Paulson last week heard complaints from Democrats in Congress that the number of homeowners receiving relief so far has been insufficient. ``We are now in the midst of one of the most serious economic crises we have seen in recent years,'' Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, said in a speech in Boston yesterday.
Federal Reserve officials project about 2 million homeowners face higher mortgage rates over the next two years as their loans reset higher. Economists at the Federal Deposit Insurance Corp. estimate foreclosures this year will be about 1 million more than average, a level that FDIC Chairman Sheila Bair has said ``is just too high.'' They average about 600,000 in a typical year.
Paulson and Housing and Urban Development Secretary Alphonso Jackson will discuss the plans at a press briefing today, scheduled for 11:15 a.m. in Washington.
`Over and Over'
``This is good, but we've seen this over and over again,'' said Kathleen Day, a spokeswoman for the Center for Responsible Lending in Washington. ``The fact that they keep having to roll out subsequent rescue plans every few weeks underscores that each plan is inadequate.''
Declining house prices have made it harder for some borrowers to refinance as the value of their homes drops, in some cases below the amount of their mortgages. Sales of existing homes fell the most in 25 years last year and values dropped for the first time since the Great Depression.
Purchases fell 2.2 percent in December, according to the National Association of Realtors. For all of last year, sales of single-family homes declined 13 percent and prices dropped 1.8 percent, the first decrease since records began in 1968 and probably the first since the 1930s, the group said.
Message to G-7
``The housing correction, high energy prices, and capital market turmoil have combined to weigh on near-term growth,'' Paulson said at the conclusion of a weekend meeting of Group of Seven finance ministers and central bankers in Tokyo.
The accord among the six banks is the latest effort backed by the Bush administration to rescue troubled borrowers. In December, Paulson negotiated a deal that would freeze rates on some subprime loans for five years.
Democratic Senator Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, is exploring the creation of a federal program to buy and restructure delinquent and near-delinquent loans ``to help many borrowers as quickly as possible.'' Frank has also favored the proposal.
Reuters reported the latest agreement earlier yesterday.
Rick Simon, a spokesman for Calabasas, California-based Countrywide, didn't immediately return a phone call. Spokeswoman Debora Blume of Wells Fargo in Des Moines, Iowa, declined to comment. Shane Winn, a spokesman for Washington Mutual in Seattle, couldn't be immediately reached for comment, nor could Danielle Romero-Apsilos, a Citigroup spokeswoman in New York, Terry Francisco at Charlotte, North Carolina-based Bank of America Corp., or Thomas Kelly at JPMorgan.
Heat From Regulators
The mortgage industry has been under growing pressure from federal bank regulators to step up efforts to modify troubled loans, even after the Hope Now agreement to freeze rates for some subprime borrowers. Bair has cited a November Moody's Investors Service report showing only 3.5 percent of loans that reset in the first eight months of 2007 have been modified.
Hope Now released an industry survey last week showing that U.S. mortgage servicers helped 545,000 subprime borrowers keep their homes by setting up repayment plans or altering loans in the second half of last year.
Bill Longbrake, the Financial Services Roundtable's senior policy adviser and the report's author, said the survey showed servicers helped more borrowers as the year progressed. Consumer advocates said loan modifications and repayment plans don't go far enough.
``These borrowers need to be refinanced into fixed-rate affordable loans,'' Jim Carr, chief operating officer at the Washington-based National Community Reinvestment Coalition, said last week.
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