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Project Lifeline Hopes to Avoid More Foreclosures

Written By Brian Hicks

Posted February 12, 2008

Ok— call me a cynic, if that’s how it looks. I wouldn’t exactly argue with you if you did.

Of course, I’d prefer to be known as a realist, but that’s another matter entirely.

A realist, after all, is a person who tends to view or represent things as they really are. And besides it just sounds better.

But as a person who now believes that it is only selfishness that motivates the actions of the banks these days, that definitely makes me more of a cynic on this score.

That’s because despite all of the fanfare today surrounding the latest gimmick to help troubled borrowers, I know that when you strip away all of the spin and the PR, Project Lifeline is more about saving the balance sheets of the cash strapped banks than it is in keeping homeowners afloat.

I say that because in a fast declining market–like the one we have today-the last thing that a bank really wants is the keys back on that asset.

Instead, they’d much rather “work it out.” 

And if that compassion can be played up in the media for something that it’s really not, then it’s twice as good. People love compassionate bankers, you know.

The problem here, of course, is that it’s not compassion that is guiding these banks as much as it is self-interest. Because after largely crumpling up and throwing away 40 years of banking wisdom during the run up, those same banks would rather not have to deal with the consequences of their own foolishness now.

Instead, they are willing to do anything it takes to chain as many homeowners as they can to those same falling property values that they themselves would rather avoid.

So how do I know this?  

Well ask yourself this question:  If any of these “homeowners” actually had any equity, would the banks involved be so compassionate?

There is a reason, after all, why the process is called “loss mitigation.”  And in truth, it is not about mitigating a borrower’s pain, but the banks.

So sure, while Project Lifeline may save some homeowners from becoming renters, it will also chain a fair share of them to that big gorilla–an asset whose value is dropping like a rock.

Anyway, here are the details on the latest desperate scheme by the banks to save their own bacon.

From CNNMoney by Les Christie entitled: Major lenders put freeze on foreclosures.

“Six of the nation’s largest mortgage lenders have temporarily stopped foreclosure proceedings in a joint effort to cool the raging foreclosure crisis.

Under a program unveiled Tuesday, legal efforts to oust seriously delinquent borrowers from their homes will be postponed for 30 days while lenders and borrowers try to work out payment options.

The effort, known as Project Lifeline, will not be confined to borrowers with adjustable rate mortgages. So-called ARMs have recorded the highest rates of delinquencies, even as defaults for loans of all types have risen dramatically over the past couple of years.

“For many families, Project Lifeline will temporarily pause the foreclosure process long enough to find a way out. Loan modifications may follow,” said Alphonso Jackson, Secretary of Housing and Urban Development. “This program is not only available to subprime borrowers but to people with any kind of home mortgage.”

Under the program, homeowners seriously behind in their mortgages will get a letter from their lenders asking them to call. Borrowers will be asked if they want to stay in their homes; if so, they will be offered financial counseling.

Loan modifications are not automatically granted. Borrowers will have to provide up-to-date information about their wages and debts. At that point, the lenders decide whether to pause the foreclosure process.

During the moratorium, foreclosure prevention specialists will determine if there’s a good possibility that a loan modification will work. In other words, will a borrower be able to regain his footing and start paying his mortgage again?

Any loan modifications – such as lowering interest rates, balances or both – will be provisional. After homeowners make payments on time for three months, the changes to the terms of loans will become permanent.

For lenders, repossessing homes has become an increasingly unprofitable venture. As real estate markets have turned down, many at-risk mortgage borrowers are upside-down – meaning they owe more on their loan than their home is worth.

These days, lenders often lose money when they foreclose on and resell properties – an average of $50,000 per home. It’s cheaper to work out a deal with defaulting borrowers.”


Aren’t banks great?

First they put you into a loan program that they had to know was idiotic, and then they try to get you to keep it when it look like it’s going to blow up in their face.

BTW: During the news conference of the announcement today, Hank Paulson was asked: “Is the worst over?”

His response?  Paulson said, “The worst is just beginning.”