New Deal by Banks Offers Hope to Delinquent Mortgage Debtors
Prodded by politicians and perhaps seeing a potential benefit to themselves, six major banks are expected to announce a new program tomorrow morning to help seriously past-due mortgage debtors climb out of the delinquency pit.
Although details of the Project Lifeline plan are sketchy, the six banks will work with debtors who are at least 90 days behind and try to help them catch up, reports the Wall Street Journal. Among the techniques that will be used to do so: a 30-day freeze on the foreclosure process, as the parties figure out what to do. The program will apply to all types of mortgages, the newspaper says, not just subprime loans.
However, Reuters says that the new program will target subprime mortgages. A brief forbearance period may be used to determine whether the borrower can afford to repay the loan if terms are adjusted, the news agency explains.
A critic also suggests that the lenders should consider lowering the principal balance on delinquent mortgage loans to the current fair-market value, although he acknowledges that this could create a liability risk for loan servicers if investors feel they have been too generous with delinquent borrowers, the newspaper reports.
The six participating lenders are: Bank of America Corp., Citigroup, Countrywide Financial Corp., J.P. Morgan Chase, Washington Mutual and Wells Fargo & Co.
As discussed in an earlier ABAJournal.com post, it may be to a lender’s advantage to find a way to salvage a delinquent loan rather than take the heavy financial hit that is involved in foreclosing.
