An article in the Miami the Bush administration announced Tuesday that homeowners facing foreclosure would in some instances get a 30-day reprieve under an initiative. Critics scrutinized the proposal saying it was far from what is needed to resolve a serious financial crisis that is threatening the loss of homes for millions of families.
Six of the nation's largest financial institutions will begin contacting homeowners who are 90 or more days overdue on their monthly mortgage payments, according to the new program. While the lenders look for a way to make the mortgage more affordable, homeowners will be given the opportunity to put the foreclosure process on pause for 30 days.
Holders of all types of mortgages from prime to subprime will be eligible for this new program. “This new program represents a widening of an initiative announced by President Bush in December that offers a freeze on subprime mortgage rates that are scheduled to reset to sharply higher rates for borrowers who qualify for the assistance”, the Miami Herald was quoted as saying.
Treasury Secretary Henry Paulson said the 30 day pause could give borrowers valuable time to work out refinancing terms with their lenders. Lenders however would not be required to offer different financing terms than they are already offering to borrowers in trouble.
Much more assistance will be needed in the upcoming two years to prevent what is expected to be a tidal wave of foreclosures, critics predict.
Sen. Chuck Schumer, D-N.Y., said the problem was that the administration's latest effort does not address the fact that more than 30 percent of homeowners who bought in the last two years owe more on their mortgages than their houses are currently worth, saying the problem will not be adequately addressed until lending institutions cut down on the borrowers' debt.
This current crisis reflects the worse slump in housing in more than two decades. This severe downturn in the housing market follows a five-year boom that saw both home sales and prices hit record levels, only to come crashing down over the past two years.
Homeowners that had expected to refinance their adjustable-rate mortgages before they reset to much higher rates have been caught in the sharp downturn as home sales and prices have sank in many parts of the country.
The overall economy has been affected by the housing slump and raising fears of a possible recession. Paulson said the economic stimulus package that President Bush will sign on Wednesday plus the administration's various housing initiatives would all help to jump-start economic activity.
At a news conference he said, in terms of housing and the estimated 1.8 million subprime mortgages, that the "worst isn't over" yet.
Letters sent by the six financial institutions to homeowners who are critically delinquent on their mortgage payments, asking them to contact their mortgage servicer, will be the first step the 30-day mortgage moratorium effort.
The letter may begin, "You are being considered for a loan modification, which is a change in the original terms of your mortgage contract. If you qualify, this could reduce your interest rate or extend the time you have to repay your loan, or both."
The homeowners receiving the letter will be provided a phone number for their mortgage servicing company they will need to call to be considered for the 30-day foreclosure moratorium and a possible loan modification.
At the end of the July-September quarter, the Mortgage Bankers Association reported that at least 1.3 million home mortgage loans were either seriously delinquent or in foreclosure . The numbers of foreclosures are predicted to soar to 1 million this year and next, about double the 2007 rate.
Under the guidelines, if homeowners are already in bankruptcy or have a foreclosure sales date less than 30 days away, they would not qualify for the moratorium or if the home had been purchased as an investment property or was not occupied at the current time.
Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., J.P. Morgan Chase and Co., Washington Mutual Inc. and Wells Fargo & Co., are the six participating banks. These banks account for 50 percent of the mortgage servicing market.
The banks above are all members of the Hope Now Alliance, an industry group that is trying to coordinate a response to the mortgage crisis. Officials urged homeowners to call the group's toll free hot line number at 1-888-995-HOPE for assistance.
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