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ECONOMY: More U.S. Banks Agree to Stall Home Repossessions

Abid Aslam

WASHINGTON, Feb 19 2008 (IPS) - A coalition of U.S. mortgage banks said Tuesday that they would join a nationwide effort to stem a rising tide of home repossessions.

Members of the Hope Now alliance said they would sign on to Project Lifeline, launched last week by six leading lenders. Under the initiative, seriously delinquent borrowers are offered a 30-day reprieve during which they can try to negotiate payment plans or new loan terms aimed at letting them keep their homes.

“Just last week we saw six servicers take the lead and agree to this initiative,” said Henry Paulson, the treasury secretary.

“Now that all Hope Now members have signed on, more than 90 percent of the subprime servicing market and nearly 70 percent of the entire mortgage servicing market is committed to this coordinated method of reaching more homeowners,” Paulson added.

Tuesday’s move came at the Bush administration’s urging and amid a worsening economic outlook.

Nearly 1.3 million homes fell into foreclosure last year, a 79 percent increase over 2006, according to RealtyTrac, a market monitor. The trouble appears to be spreading faster: In the final three months of 2007, foreclosures grew by more than 86 percent over the same period in 2006.

Millions more risk being dispossessed this year as adjustable-rate mortgages reset at unaffordable levels, say economists.

Project Lifeline is being made available to borrowers regardless of whether they have conventional or subprime loans. All previous relief efforts have been limited to borrowers with poor credit who took high-risk, high-cost loans that have been the focus of the mortgage mess.

Some Hope Now members said they had taken measures similar to Project Lifeline before Tuesday’s announcement. For most, however, the initiative marks new territory. When they came together late last year, they offered only to freeze interest rates on some subprime mortgages for up to five years. Typically, these loans feature interest rates that are set artificially low – in order to entice loan applicants – and that rise rapidly after one or more years.

Some lawmakers have assailed the new initiative as insufficient.

“This plan, while a step in the right direction, will not stem the tide of the millions of foreclosures we are facing in the coming months,” Chris Dodd, a Democrat and chairman of the Senate Committee on Banking, Housing, and Urban Affairs, said last week.

Further action would be taken if needed to prevent foreclosures, Paulson said. Relief efforts so far have reached few at-risk borrowers, he acknowledged.

Whole communities are wrecked as pauperised borrowers default on loans and lenders repossess their homes.

Even a few foreclosures in a given neighbourhood can result in increased crime, the devaluation of surrounding properties, the erosion of the local tax base, and consequent revenue shortfalls. In turn, these factors force local authorities to cut public services.

Municipal and state authorities, unhappy with the pace and scope of lenders’ and the federal government’s response, have taken financial firms to court.

Some are suing lenders in hopes of recouping lost taxes and money spent on cleaning up foreclosed homes that, plaintiffs say, the mortgage companies should maintain.

Other suits involve alleged predatory lending. The city of Baltimore, in the eastern state of Maryland, filed a federal lawsuit last month accusing a leading U.S. mortgage lender of steering black borrowers to subprime mortgages while granting safer traditional loans to similar applicants who were white. The firm, Wells Fargo & Co., denies the charges.

Maryland officials also have gathered evidence that lenders pushed disproportionate numbers of women into the substandard loans.

As home prices fall and banks tighten lending standards, even borrowers with good credit histories are falling behind on loan and credit card payments. Politicians and commentators warn of an impending credit card crisis to dwarf the subprime mortgage fiasco.

The White House expects the economy to grow by 2.7 percent this year. Private-sector economists anticipate growth of 1.6 percent. The International Monetary Fund (IMF) has lowered its 2007 growth estimate to 1.5 percent and warns that the economy could grow by as little as 0.8 percent in 2008. This would fall behind population growth, estimated at 0.9 percent. President George W. Bush signed last week a 168-billion-dollar plan aimed at averting a prolonged recession.