Does the lifeline reach far enough?

Marketplace Staff Feb 15, 2008

Does the lifeline reach far enough?

Marketplace Staff Feb 15, 2008


Tess Vigeland: Remember the “Hope Now” rescue plan? Well, to that you can now add “Project Lifeline.”

It’s being described as a “foreclosure freeze:” six big mortgage lenders agreed to put the brakes on foreclosure proceedings for certain borrowers.

Treasury Secretary Henry Paulson said the program will give borrowers more time to refinance. Senator Dick Durban, a Democrat from Illinois, called it a 30-foot rope for homeowners floating 50 feet from the shore.

To sort it all out we’ve invited Professor Gary Painter of the University of Southern California to join us.

Vigeland: Welcome to the program.

Gary Painter: Thank you”Project Lifeline”

Vigeland: Who qualifies for relief under this new “Project Lifeline?”

Painter: The people that qualify for the program are those who have not been making payments for at least 90 days.

Vigeland: And this gives them a 30 day reprieve?

Painter: That’s right. So, it gives them 30 days to, perhaps, work out a plan with their bank or their mortgage servicer to figure out how to, perhaps, start repaying the loan.

Vigeland: Is that enough time for thousands of borrowers to get deals done with their mortgage companies?

Painter: In general, 30 days is probably not enough time, but we have to think about why are the banks are doing this. Banks are going to do this partially for political reasons given the environment, but you know, banks are in business to make money and I think what they see is this is an opportunity to give some people a little more time where they might be able to work out a plan.

Vigeland: How is “Project Lifeline” different from “Hope Now,” which was introduced a few months ago by the Bush administration?

Painter: The “Hope Now” program had, at part of it’s core, sort of freezing foreclosures but it also had freezing interest rates for, actually, quite a long period. The problem with that is how financial markets would adjust to a freeze of a very small group of mortgages. It’s unclear how Wall Street and foreign investors would react to that sort of move by the Bush administration, so I think that action was not taken after a lot of rounds of negotiations and discussions because of the potential adverse future effects on the financial market.

Vigeland: So we don’t know yet whether “Hope Now” is working?

Painter: The big difference from the banks’ perspective between “Hope Now” and the present “Project Lifeline” is that freezing interest rates is not in the bank’s best interest so they would have every incentive to delay the implementation of that type of program, but “Project Lifeline,” given the circumstances, the quantities of foreclosures and so forth, I think actually is in the bank’s best interest to intact. It gives them 30 days to figure out what to do with foreclosures, to see if they can give borrowers an opportunity to get back on track.

Vigeland: What else needs to be done in your opinion and as someone who has studied this issue, if anything or are people reaping what they sowed in terms of getting bad mortgages and buying homes that they couldn’t afford?

Painter: Well, I think the biggest thing that public policy makers need to be concerned about is was there fraud in the industry and so was there fraud in terms of the mortgage brokers providing false documentation to those who were buying the mortgages? Was there predatory lending going on in certain situations where people weren’t being told all the information about their loan or not told in a way that they could actually understand what was going to be happening with loan. But if there was fraud, and there is evidence that is being accumulated that there was some fraud in the markets, that has to be cracked down on and better, information needs to be given to borrowers.

Vigeland: Gary Painter is the director of research at the Lusk Center for Real Estate at the University of Southern California. Thanks for coming in today.

Painter: Thanks for having me today.

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