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Borrowers Thrown New Lifeline


Foreclosure assistance for all.

Banks are expanding the New Hope Alliance to include nearly anyone having trouble making a mortgage payment, widening the web of assistance available to struggling homeowners. "Project Lifeline," as the new plan is dubbed, will reach out to borrowers not yet in foreclosure, but well on their way, regardless of loan type or credit worthiness.

The inclusion of non-subprime loans shows the banking industry's concern about delinquencies creeping up the credit spectrum into the four-fold larger prime mortgage market. Borrowers in bankruptcy or already going through foreclosure do not qualify for the program, as apparently the lifeline just isn't long enough for everyone.

Major banks and servicers are working with Treausury and HUD to bang out a plan that can be implemented as early as this week. Bank of America (BAC), Citigroup (C), JP Morgan Chase (JPM), Washington Mutual (WM), Wells Fargo (WFC) and Countrywide (CFC) hope the new effort will finally begin to slow the wave of foreclosures that threatens to evict one million homeowners this year.

Homeowner advocacy groups have criticized the mortgage industry for its efforts thus far, saying "[t]here is a huge disconnect between what is being represented by the industry and what is happening on the ground. Borrowers are falling through the cracks while more and more of these press releases come out. It's clearly not enough."

Servicers are required to protect the interest of the owner of a loan rather than the borrower, but the advent of mortgage backed securities has reduced their ability to determine exactly who that investor may be. Servicers may also be exposed to lawsuits if they modify loan terms too generously.

With each subsequent bailout, regulators are giving borrowers less reason to make good on their payments. Many are simply walking away, and it's hard to blame them. Every few weeks Washington announces a new plan to bail out stressed consumers; at some point struggling to make ends meet just doesn't make sense.
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