Boston Fed, Banks in $125 Mln Subprime Aid Plan

By Scott Malone

BOSTON (Reuters) - The Boston Federal Reserve Bank and five U.S. banks unveiled details on Thursday of a $125 million program to help New England homeowners refinance into fixed-interest-rate home loans if they are facing increases in monthly mortgage payments that they cannot afford.

"The recent rise in delinquencies and foreclosures has been widely reported, and it's very possible that this problem is going to worsen," Boston Federal Reserve Bank President Eric Rosengren said at a press conference here.

He said the Mortgage Relief Fund "should make it easier for some homeowners who are paying high rates and those who face a reset of an adjustable rate mortgage to refinance."

The five banks are Citizens Financial Group, a unit of Royal Bank of Scotland Group Plc (RBS.L); Sovereign Bancorp Inc SOV.N; TD Banknorth, a unit of Canada's Toronto-Dominion Bank (TD.TO); Bank of America Corp (BAC.N), and Webster Financial Corp (WBS.N).

Loose lending standards, rising interest rates in 2005 and 2006, and falling house prices have resulted in increasing numbers of less credit-worthy U.S. borrowers defaulting on their so-called subprime home mortgages in 2007.

Interest rates on many subprime mortgages are due to rise in 2008, leaving more borrowers facing the possibility of default in a housing market so soft they may not be able to sell their homes for enough to pay off existing mortgages.

The New England program aims to allow homeowners with adjustable-rate mortgages to refinance into fixed-rate mortgages with lower interest rates. To be eligible, borrowers's homes must be worth more than the balance of their loans, they must live in them and they must have generally made payments on time.

Rosengren said Boston Federal Reserve research had shown that many subprime borrowers had credit scores and levels of home equity that would allow them to qualify for traditional mortgages.

MILLIONS FACE HIGHER PAYMENTS

More than 1.8 million homeowners nationwide could see mortgage payments rise by about $350 a month by the end of next year, according to Federal Reserve data.

Last month lenders began more than 200,000 foreclosure proceedings in the United States, a 68 percent increase from a year earlier, according to RealtyTrac data.

"The tragedy here is that there are so many borrowers that are victims of credit, but are qualified for programs that might relieve the pressures that they feel and prevent the foreclosures, which are potentially so difficult for our neighborhoods," said Lawrence Fish, chairman of Citizens Financial.

Housing advocates have clamored for government help for borrowers who are making their payments but would be unable to meet higher payments. A federal program introduced in August that is intended to save tens of thousands of homeowners from foreclosure has so far aided 266 borrowers, according to government data released on Monday.

New England officials said much of the responsibility rests with borrowers, who need to seek help before falling behind in mortgage payments. Details about relief programs are available on the Internet at www.mortgagerelieffund.com/.

"Borrowers who are worried or who are already dealing with these issues must take action," said Massachusetts Gov. Deval Patrick. "If you are facing a rate reset or you are dealing today with a mortgage payment you cannot handle, please take action."

(Editing by Jeffrey Benkoe and Toni Reinhold)