Mortgage alliance to offer foreclosure "pause"

By David Lawder

WASHINGTON (Reuters) - All members of the Hope Now alliance of mortgage lenders and servicers have agreed to adopt guidelines for a 30-day "pause" in foreclosure proceedings to help seriously delinquent borrowers modify their mortgage terms, the alliance and the U.S. Treasury said on Tuesday.

The move expands an initiative announced last week by the top six mortgage lenders called "Project Lifeline" to dozens of other companies that now represent about 90 percent of the subprime mortgage market and nearly 70 percent of the entire mortgage market, the Treasury said.

The initiative offers homeowners who have missed three months of mortgage payments a 30-day delay in foreclosure proceedings if they seek help in working out new, more affordable loan terms.

The lenders said they would send a special letter to delinquent homeowners under the program, which covers most loans, including prime, "Alt-A", subprime and second liens.

"This is a last-ditch effort to get to people that are 90 days delinquent in their mortgage payment. The industry leaders came in last week, now the rest of the industry has come in behind them," Treasury Secretary Henry Paulson told CNBC television.

The Treasury-backed Hope Now alliance was created in October 2007 to bring together mortgage lenders, servicers, investors and counselors to help subprime borrowers modify their loans, including freezing some rates at their initial, "teaser" levels.

Some U.S. lawmakers criticized the Project Lifeline effort last week, saying it did not go far enough to stem a rising tide of foreclosures caused by the resetting of adjustable-rate mortgages to unaffordable levels.

An estimated 1.5 million subprime mortgages, which are traditionally targeted at borrowers with poor credit histories, will reset to higher rates this year, putting many owners at risk of losing their homes. Another 500,000 will reset in 2009, according to Federal Reserve estimates.

Economists warn that this will lead to hundreds of thousands of foreclosures, adding to bulging inventories of unsold homes and putting downward pressure on prices. Falling home prices in many markets are already causing a pullback in consumer spending, putting the U.S. economy on the brink of recession.

Trenton, New Jersey Mayor Douglas Palmer said on Tuesday the government response to the foreclosure crisis so far has been inadequate.

"I know hope is a good thing, but people need help now," said Palmer, who chairs the U.S. Conference of Mayors. "Most of the people who are really in trouble may be one, two, three months behind. There has to be a program to deal with that."

He said he wants Congress to expand tax-exempt bond authority to refinance mortgages and new federal grants for cities to buy abandoned properties and to expand education and counseling for today's troubled borrowers.

"It has just been a slow response from the administration. We want to see more done to help more people," Palmer said.

(Additional reporting by Patrick Rucker in New York.)