New foreclosure plan not cure-all: FDIC
By John Poirier
WASHINGTON (Reuters) - A new plan by six major lenders to delay home foreclosures for some borrowers will not be any more effective than a government-brokered temporary rate freeze program rolled out several weeks ago, a top U.S. banking regulator said on Wednesday.
Six banks that service about half all U.S. mortgages unveiled a plan on Tuesday to "pause" foreclosure proceedings for borrowers more than 90 days in arrears, while new terms are considered. The plan, known as "Project Lifeline," is supported by the departments of the U.S. Treasury and Housing and Urban Development.
"I wouldn't say it's any more effective," Federal Deposit Insurance Corp Chairman Sheila Bair told reporters when asked if the new plan would work better than the Treasury-brokered voluntary plan to temporarily freeze interest rates. That program was announced in December.
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Bair called Project Lifeline "another piece" in government and industry efforts to stem home losses in a weakening U.S. housing market. She spoke after addressing an affordable housing group meeting.
But another U.S. banking regulator, the Office of the Comptroller of the Currency, called the new plan an "important initiative" to help distressed homeowners. A third banking regulator, the Office of Thrift Supervision, said in a statement it was "totally supportive" of Project Lifeline as a way to encourage borrowers to talk with their lenders.
Some Wall Street analysts and Democrats have expressed doubts about the effectiveness of both plans, which are voluntary on the part of lenders.
According to Barclays Capital analysts, the Project Lifeline plan to delay foreclosures is likely to have only a limited effect, as most borrowers in this group likely cannot afford their loans at current terms.
"We have reservations as to whether 30 days is long enough," said a report by Barclays analysts Glenn Boyd and Joseph Astorina. "A proposal to pause foreclosures and potentially offer loan modifications is likely to have only (an) incremental effect."
Sen. Christopher Dodd, chairman of the Senate Banking Committee, said Project Lifeline was not enough.
"The industry and the administration are running to catch up as fast as they can to a problem that is getting broader and deeper by the day, but they seem to be falling further and further behind," said Dodd, a Connecticut Democrat.
A member of the Senate's Democratic leadership put it even more strongly.
"Homeowners at risk of foreclosure are floating 50 feet from shore while Project Lifeline throws them a 30 foot rope," said Sen. Richard Durbin of Illinois.
Lenders involved in Project Lifeline are Bank of America Corp <BAC.N>, JPMorgan Chase& Co <JPM.N>, Citigroup Inc <C.N>, Wells Fargo & Co <WFC.N>, Countrywide Financial Corp <CFC.N> and Washington Mutual Inc <WM.N>. They agreed to "pause" or delay pending foreclosures for delinquent borrowers by up to 30 days.
Primary and second lien mortgages and home equity loans provided to subprime borrowers with poor credit histories, as well as more credit worthy borrowers, will be considered, according to the banks.
The plan does not apply to loans in active bankruptcy and in foreclosure process with a sale date less than 30 days, and to investment and vacant properties.
(Reporting by John Poirier, editing by Richard Chang/Andre Grenon)