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Editorial: Another positive step to help homeowners

Government, private sector are working with borrowers.

Last update: February 15, 2008 - 7:20 PM

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HERE AT HOME

• Twin Cities foreclosure filings increased 147 percent from 2006 to 2007.

• The 12,755 in local filings last year represented about .08 percent of all households.

• This area ranks 60th among the nation's 100 largest metro areas with homes in some stage of foreclosure in 2007.

Source: RealtyTrac

When the mortgage mess first hit the headlines, subprime loans seemed to be the culprits. But now it is painfully clear that the problem is more widespread. About 1.6 million Americans defaulted on all types of home loans in 2007 -- and millions more are expected to fall into foreclosure this year.

That's why the Bush administration and several major mortgage companies recently announced a second initiative to help struggling homeowners. Called Project Lifeline, the plan calls for a 30-day moratorium on foreclosures for people who are at least three months behind on house payments. The idea is to give borrowers with any type of loan more time to work out new terms with their lenders.

Lifeline is intended for those who cannot be helped by Hope Now, the administration's earlier effort. That plan, developed late last year, applies only to subprime loans. It delays interest rate increases for homeowners who have not yet defaulted, and calls for a five-year interest rate freeze on some adjustable-rate subprime loans.

Lifeline is a response to mounting evidence that the credit crises has spread beyond subprime loans to hit borrowers of prime loans who are facing higher adjustable payments at the same time their home values are plummeting.

With that backdrop, both Project Lifeline and Hope Now are well intentioned. In this era of foreclosure crisis, government and financial companies should work with borrowers to keep roofs over the heads of responsible borrowers.

Critics worry that the plans are too little, too late. It's not clear how many borrowers will actually be helped. And because lender participation is voluntary, it's also uncertain whether the mortgage help will be actively offered by most banks. The strategies don't do much to help those who are already in foreclosure or have entered bankruptcy. Nor do they assist homeowners in danger of losing their property within 30 days.

Six major lenders -- Bank of America, Citigroup, Countrywide Financial, J.P. Morgan Chase, Washington Mutual and Wells Fargo -- said they would participate in Lifeline. That small group of institutions hold an estimated 50 percent of all U.S. mortgages. Keeping people in their homes benefits lenders, too, because of the costs associated with foreclosure. And in this depressed housing and credit market, a hard-to-sell property racks up higher losses for the bank. It makes financial sense to give responsible homeowners opportunities to stay put.

Though they won't solve the problem by themselves, the plans do set the right tone. Hopefully, the initial Lifeline lenders will go the extra mile to help their customers stay afloat. And if they encourage other banks to avoid lowering the foreclosure boom, all the better.

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