Project Lifeline and Foreclosure

Posted on February 25th, 2008 by Samanta Parks

This month, the Bush Administration announced the formation of Project Lifeline. Project Lifeline helps qualified homeowners stave off foreclosure. The homeowner receives a thirty day leeway. During this time period, the homeowner can negotiate a payment plan with their creditor. This program will be available to delinquent homeowners with prime or subprime loans.

Mortgage holders with subprime loans account for a large number of foreclosures in the past few years. Subprime loans target high risk borrowers. However, homeowners with good credit histories are falling behind as well.

Bank of America, Citigroup, J.P. Morgan, Chase & Company, Washington Mutual and Wells Fargo have agreed to take part in Project Lifeline. With such big companies supporting Project Lifeline, these programs may have arrived too late to help some homeowners. This program cannot help the millions of people who have lost their homes to foreclosure or those who already know that their homes will be foreclosed on in thirty days. Also, it is unclear if the month long leeway in foreclosure proceeding against seriously delinquent borrowers will have any real impact.

Kenneth Wad, the CEO of NeighborWorks America commented to Newsweek about Project Lifeline. NeighborWorks America is a non-profit organization that runs a help line for those homeowners who are facing foreclosure.

When asked about Project Lifeline and if it could truly help homeowners prevent foreclosure, he stated that when borrowers are given additional time to find ways to prevent foreclosure that is always helpful. He state that thirty day can very well be enough time to develop a workable plan even though it may not be enough time to find a complete resolution.

Mr. Wade continues to say that seriously delinquent homeowners who have gone into foreclosure have not had any contact with the lender. The reasons for this may be that they are embarrassed over their situation; they think they can solve the situation on their own, or they feel that nothing and no one can help them. Some homeowners even believe that this would speed up the foreclosure process. One should also consider that some lenders only interact with the borrower when the account goes into collections and collections is only designed to collect payment, not working toward a solution to the financial problem.

With some lenders stepping up and helping homeowners, Kenneth Wade suggests that more lenders should participated in Project Lifeline and make some modifications such as extending interest rate freezes on mortgages and do principal write downs. This can create home ownership that is sustainable. These write downs would vary depending on the market. If some markets where housing values have declined from twenty percent to thirty percent would have a significant write down while other markets with a smaller decline in home values, the write down would be less significant. Lenders have taken write downs because after evaluating their portfolios they discover that the value is not what it once was when the loan was originally made.

When asked if write downs for delinquent homeowners is fair to those homeowners who pay on time and still pay the whole principal, Kenneth stated that in the current economic situation, it is important to realize the wide spread impact. He states that if foreclosures continue, housing values will erode. If some people in a neighborhood go into foreclosure, someone else in that same neighborhood that pays their mortgage on time will see the value of their own home decline.

Kenneth Wade does not believe we have seen the worst of the current mortgage crisis. He says that within the next year, lenders will reset adjustable mortgage rates and if lenders do not get ahead of it, we will see the largest loss in home value in seventy years.