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Monday, February 11, 2008 11:40 PM


Project Lifeline: A Lifeline For Who?


I am looking back on a post I wrote in December called Little Hope For Hope Now Alliance. A followup post was called Hope Is Now a Sucker Trap. As of today, the Hope Now Alliance is officially dead.

What spurred my interest in the Hope Now Alliance is a new lender proposal to avert foreclosures called Project Lifeline.

Prodded by the Bush administration, six major mortgage lenders are due to announce today a stepped-up effort to rescue homeowners on the brink of foreclosure.

Under the latest plan, dubbed Project Lifeline, the lenders promise to seek contact with homeowners who are 90 or more days overdue on their mortgages. In some cases, homeowners will be given the chance to "pause" their foreclosure for 30 days while lenders try to work out a way to make the loans affordable. Lenders could begin sending letters to these borrowers as soon as this week.

Unlike the plan announced in December to freeze interest rates at current levels on certain adjustable-rate loans, this latest effort is to involve all kinds of home loans, not just subprime mortgages, a higher-cost variety for people with blemished credit records or high debt in relation to income.

The participating banks, which service about half of the U.S. mortgage market, are Bank of America Corp.(BAC), Citigroup Inc. (C), Countrywide Financial Corp. (CFC), J.P. Morgan Chase & Co. (JPM), Washington Mutual Inc (WN). and Wells Fargo & Co (WFC). -- all members of the so-called Hope Now Alliance. They are working with the U.S. Treasury and Department of Housing and Urban Development.

At least 1.3 million home-mortgage loans were either seriously delinquent or in foreclosure at the end of the third quarter, according to the Mortgage Bankers Association. Not all of those loans would qualify for the program, however.

Analysts at the investment-banking firm Lehman Brothers recently estimated that the number of foreclosures will surge to one million this year and next, about four times the 2007 level.

Some nonprofit groups that work with troubled borrowers say lenders have become more flexible in recent months in efforts to find ways for more borrowers to keep their homes. But they also say the industry needs to do more.
Project Lifeline Is A Lifeline For Banks

Here's the deal. Banks are so capital impaired they cannot afford to have you walk away. And the more desperate they are to keep you in your debt trap (the more underwater you are), the more you should be inclined to walk. This proposal is simply another lifeline for banks not for you.

Oh sure, sure some will benefit from this program. But for most of those deep in debt and considering walking, this will just delay the inevitable.

If Bank of America, Citigroup, or Wells Fargo just jacked up its credit card rate to usury levels on you (See Love Affair With Credit Cards Is On The Rocks), you are entitled to take that into consideration. Tell them your love affair with your house is on the rocks.

Perhaps it's time for real hardball. Get an honest appraisal on your house. Consider walking unless they lower the amount you owe to what the house is worth (assuming of course you can afford payments at that rate).

They probably won't do it. If you choose to walk at that point you will at least know what you are walking away from. Most likely it will be tons of debt and most likely you will be happy to be out of the debt trap.

A year from now when banks are stuck with a half million more foreclosures they may be more inclined to accept those kinds of offers.

Countrywide Debuts Its Subprime Plan

MarketWatch is reporting Countrywide debuts subprime 'workout' plan.
Countrywide Financial Corp is teaming up with the Association of Community Organizations for Reform Now, the advocacy group also known as Acorn, to expand an existing $16 billion program to help subprime borrowers avoid foreclosure and work out more manageable rates on their mortgages.

The new plan will be open to borrowers whether they are current on their payments or not, and they need not have adjustable-rate mortgages to apply, the company said. It will allow all Countrywide borrowers with subprime loans to seek "workout" options, not just those with ARMs whose rates are due to "reset" at higher levels.

How effective government and industry programs have been is debatable. The Mortgage Bankers Association reported last month that subprime ARM borrowers who already had a repayment plan or loan modification in place but were unable to avoid default anyway accounted for 40% of the subprime ARM foreclosures.
Dangers Of Debt Counseling

I found an interesting site tonight called Dangers Of Debt Counseling.
Here are a couple of tips.
  • Many debt counseling programs advertising themselves as "non profits" may be fronts for profit making entities more interested in their own pocketbook than yours.

  • Some debt counselors confine themselves to dealing with your unsecured commercial creditors, excluding your obligations for non dischargeable child support, unpaid taxes, or the crushing car loan. In effect, they ignore the debts that are most important, while channeling your money to creditors whose claims could be discharged in bankruptcy.
That first tip above is really pertinent. Many non-profit companies offering "free help" are directly sponsored by those with a vested interest to keep you in debt and keep you paying on that debt.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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