Month of relief not enough, some say
February 13, 2008
By TODD SPANGLER
FREE PRESS WASHINGTON STAFF
WASHINGTON -- Six of the nation's largest mortgage companies promised Tuesday to offer struggling homeowners a month's protection from foreclosure, a pause the companies say will give them time to renegotiate loans and slow the rising tide of home losses.
Metro Detroit has been among areas hardest hit by the foreclosure crisis, suggesting the plan could be of great help there -- if it's not too late. Wayne County's foreclosure rate, in fact, was the nation's worst in 2007, according to a report being released today by RealtyTrac Inc., which tracks foreclosures, and Michigan ranked third among all states.
"The worst is just beginning, we all know that," Treasury Secretary Henry Paulson said Tuesday, referring to the subprime market, where some analysts predict as many as 2 million loans would reset interest rates by the end of this year.
The Bush administration has been working with the financial institutions that made Tuesday's announcement.
It came about two months after mortgage companies banded together to freeze interest rates on some subprime loans -- more risky, adjustable rate mortgages typically offered to borrowers with poor credit or cash flow problems to justify the lower or fixed interest rates on prime loans.
But Tuesday's aid package targets a much broader range of prime mortgages and even home equity loans, offering the starkest proof yet that the crisis has spread beyond the volatile subprime market.
"There needs to be a correction" in home values, he added. "This is something we're working our way through."
On Tuesday, Paulson announced the details of the industry initiative to keep the foreclosure crisis from swamping prime markets, where it could further crush home values and, in turn, spark a recession by destroying wealth and tighten credit markets.
Bank of America, Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo, who together service about half of the country's mortgages, will send letters to borrowers at least 90 days delinquent on their mortgages, telling them to contact them if they are interested in staying in their homes.
The homeowner must contact their loan servicing company within 10 days of receiving the letter.
Then, if he or she is willing to share information on income and expenses, and agrees to credit counseling, the borrower could be eligible for a 30-day stay in foreclosure proceedings while the company reviews the loan to see if it can be modified.
The program does not cover loans in bankruptcy or where the sale date of a foreclosed home is less than a month away.
"It shows the tremendous fear these banks have for what's going on in the economy," said Jerome Goldberg, a Detroit attorney. "A 30-day freeze is not going to do it. People need some real room to work out this crisis."
Lorraine Carley, 48, of Wayne said: "I think it's wonderful. I think this economy needs everything it can get to boost it."
Dean Baker, codirector of the Washington-based Center for Economic and Policy Research, a research group, called the plan "positive, but limited."
"Given the high and rising rate of foreclosure, it would be appropriate for the government to finally move beyond such voluntary steps and to adopt measures that actually guarantee some security to homeowners," Baker said.
February 13, 2008
By TODD SPANGLER
FREE PRESS WASHINGTON STAFF
WASHINGTON -- Six of the nation's largest mortgage companies promised Tuesday to offer struggling homeowners a month's protection from foreclosure, a pause the companies say will give them time to renegotiate loans and slow the rising tide of home losses.
Metro Detroit has been among areas hardest hit by the foreclosure crisis, suggesting the plan could be of great help there -- if it's not too late. Wayne County's foreclosure rate, in fact, was the nation's worst in 2007, according to a report being released today by RealtyTrac Inc., which tracks foreclosures, and Michigan ranked third among all states.
"The worst is just beginning, we all know that," Treasury Secretary Henry Paulson said Tuesday, referring to the subprime market, where some analysts predict as many as 2 million loans would reset interest rates by the end of this year.
The Bush administration has been working with the financial institutions that made Tuesday's announcement.
It came about two months after mortgage companies banded together to freeze interest rates on some subprime loans -- more risky, adjustable rate mortgages typically offered to borrowers with poor credit or cash flow problems to justify the lower or fixed interest rates on prime loans.
But Tuesday's aid package targets a much broader range of prime mortgages and even home equity loans, offering the starkest proof yet that the crisis has spread beyond the volatile subprime market.
"There needs to be a correction" in home values, he added. "This is something we're working our way through."
On Tuesday, Paulson announced the details of the industry initiative to keep the foreclosure crisis from swamping prime markets, where it could further crush home values and, in turn, spark a recession by destroying wealth and tighten credit markets.
Bank of America, Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo, who together service about half of the country's mortgages, will send letters to borrowers at least 90 days delinquent on their mortgages, telling them to contact them if they are interested in staying in their homes.
The homeowner must contact their loan servicing company within 10 days of receiving the letter.
Then, if he or she is willing to share information on income and expenses, and agrees to credit counseling, the borrower could be eligible for a 30-day stay in foreclosure proceedings while the company reviews the loan to see if it can be modified.
The program does not cover loans in bankruptcy or where the sale date of a foreclosed home is less than a month away.
"It shows the tremendous fear these banks have for what's going on in the economy," said Jerome Goldberg, a Detroit attorney. "A 30-day freeze is not going to do it. People need some real room to work out this crisis."
Lorraine Carley, 48, of Wayne said: "I think it's wonderful. I think this economy needs everything it can get to boost it."
Dean Baker, codirector of the Washington-based Center for Economic and Policy Research, a research group, called the plan "positive, but limited."
"Given the high and rising rate of foreclosure, it would be appropriate for the government to finally move beyond such voluntary steps and to adopt measures that actually guarantee some security to homeowners," Baker said.
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