White House, Banks Expand Help for Homeowners

The Bush Administration is promoting another plan to help homeowners avoid foreclosure. It would expand voluntary efforts by major banks to modify loan terms for struggling borrowers. But housing advocates doubt the move will keep a large number of people in their homes.

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With the housing slump worsening and foreclosures on the rise, the Bush administration announced a new program today to help homeowners. Six major banks pledged to work with more borrowers who got into high interest loans they can't afford.

But NPR's Chris Arnold reports, some housing advocates question whether the new initiative will really do much to help people stay in their homes.

CHRIS ARNOLD: This new plan is basically an upgrade of an earlier one. The first was criticized for being too narrow; struggling homeowners were left out of if they missed payments or if their adjustable rates that already jumped higher. So this new effort aims to help more people.

Treasury secretary Henry Paulson.

HENRY PAULSON: Project Lifeline has a potential to offer new solutions to responsible able homeowners who want to keep their homes.

ARNOLD: The name Project Lifeline certainly sounds dramatic - it involves major banks such as Citigroup, Bank of America, and Countrywide. They're offering, they say in some cases, to delay foreclosure for 30 days to try to renegotiate loans, and they'll do that for all kinds of mortgages. But housing advocates are unimpressed.

Bruce Marks heads up the Neighborhood Assistance Corporation of America.

BRUCE MARKS: They're doing no more now than what a servicer and lender is already doing. It is a public relations exercise with no substance.

ARNOLD: Marks says lenders already have been delaying foreclosures and making loans more affordable; they're just doing it much less than they said that they would.

Eric Halperin is with the Center for Responsible Lending.

ERIC HALPERIN: There's been a lot of these pledges. There's been a lot of press conferences over the last few months about new programs.

ARNOLD: Halperin says when you look at the data, the companies are starting to do a bit more, but they're still falling far short. He says for every borrower in a subprime loan who gets their loan modified to make it more affordable, 13 other people lose their homes.

HALPERIN: And that simply shows that foreclosure is still the way that the most borrowers are having their loans dealt with by their lenders, and so there's nothing in this announcement that appears to change that dynamic.

ARNOLD: Halperin says there's a logjam inside these mortgage companies; some are afraid of lawsuits, their competing interest when a borrower has more than one loan. And while avoiding foreclosures helps most of the investors who own the loans, Halperin says some mortgage servicing companies actually make more money on fees when a foreclosure happens.

HALPERIN: A program that is simply voluntary can break that logjam, and what you need is something that has some keys to it, has some ability to force the hand on some of the participants in the process.

ARNOLD: Halperin says the most promising development right now is a bill working its way through Congress. It would allow homeowners to avoid foreclosure when they declare bankruptcy, judges could then restructure loans as they see fit. Critics worry, though, that it would echo through the credit markets and make borrowing more expensive for everyone.

Chris Arnold, NPR News.

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Plan Aims to Aid Homeowners, but Advocates Wary

The Bush administration, along with a group of major banks, announced a plan Tuesday called Project Lifeline to give more help to struggling homeowners.

Economists say as many as a million homeowners could face foreclosure during the next year. But some housing advocates question whether the new initiative will really provide more assistance.

Late last year, the administration launched a different plan, but that one drew some criticism for being too narrow. Homeowners whose interest rates spiked upward before January were left out, as were people who had missed payments.

On Tuesday, Treasury Secretary Henry Paulson said the banks have agreed to work with a broader range of people.

"This is an important new initiative, targeted to reach not only subprime borrowers, but all 90-day delinquent homeowners with a step-by-step approach to find individual solutions to individual problems," Paulson said.

The banks involved include Citigroup, Countrywide, Bank of America, Chase, Washington Mutual and Wells Fargo. They say they are offering in some cases to delay foreclosures for 30 days to try to work out a way to make the loan affordable — and they will work with all kinds of loans.

But housing advocates are skeptical.

"It is a public relations gimmick that is providing no assistance for the homeowners that they haven't had before," says Bruce Marks, who heads up the Neighborhood Assistance Corporation of America.

Marks says the reality is that lenders already have been delaying foreclosures and making loans more affordable for different types of borrowers. But Marks says the latest data shows that they are just not doing it very much.

Eric Halperin with the Center for Responsible Lending says that for every loan modification given to a borrower in a subprime adjustable-rate mortgage, 13 foreclosures occur.

A recent report from a group of state prosecutors found that in half of the foreclosures last October, no contact had even been made between the lender and the borrower.

So Halperin doesn't see how yet another voluntary pledge from the industry will change much.

"We're not really going to see, I fear, any meaningful numbers of foreclosures avoided out of this latest program," he says. "I think it's going to just be more of the same."

Many housing advocates say the most promising development right now is a bankruptcy bill working its way through Congress that would add protections for homeowners. Supporters say it would force the industry to cut more deals with borrowers who could afford reasonable interest rates. However, critics worry it would spook the market and push interest rates higher for all borrowers.

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