Alliance of Banks and Mortgage Lenders Extends 30 Day Freeze on Foreclosure Proceedings to Homeowners in Default

by Peter Vernon on Finance Foreclosures

Last year, Secretary of the Treasury Henry Paulson announced the formation of the Hope Now alliance, a network of national lending banks and government agencies committed to doing something to stave off the rising rate of foreclosures that has been hitting the country hard over the past few years. Yesterday, the group announced that they would be enacting a “30-day Freeze” on foreclosure proceedings for certain borrowers, in an effort to allow homeowners some extra time to catch up with their finances and sort out how they are going to deal with the issue of default.

The Hope Now alliance is comprised of major bank, such as JP Morgan and CitiGroup, but is also backed by the United States Treasury department. Upon announcement of the new initiative, several prominent mortgage lending companies and agencies, including Fannie Mae and HSBC, joined the group as well to display their commitment to helping stem the tide of foreclosures. Altogether, the group represents 90% of the homes held under Adjustable Rate Mortgages, and almost 70% of the entire mortgages market itself.

The 30 day freeze, which will begin on March 31, is part of a program entitled “Project Lifeline” designed to help homeowners in default by providing them with more time, information on avoiding foreclosure and assistance in selling their homes or making moves to get out of debt. The 30 day freeze is offered to homeowners who are at least 3 months behind on mortgage payments. However, the move is believed to be a chance not only to assist homeowners in debt, but also for mortgage companies and lenders to debunk the rising public opinion that they are doing little to assist homeowners or to fight the problem they helped create.

Many are already criticizing the Project Lifeline initiative, claiming it doesn’t go nearly far enough in helping homeowners avoid foreclosure, as most defaults that have gone on for 90 days are nearly impossible to remedy except through the sale of the property. Lawmakers and public figures are claiming that as a result, the program does little to help homeowners actually keep their homes.

With 2008 predicted to be one of the worst years yet for foreclosures and another half a million Adjustable Rate Mortgages set to reset in 2009, Project Lifeline may be a good start to fighting the problem, but it may be just the beginning. Plans are already being worked out to extend to other homeowners caught in ARMs a general freeze on their interest rate, that would keep it locked at a low level for a certain amount of time, allowing homeowners to catch up.