The Bush Administration ratcheted up its efforts to keep financially-stressed homeowners out of foreclosure this week with a surprise move: Treasury Secretary Henry Paulson said major lenders have agreed to put a halt to foreclosures - even where they have every legal right to proceed -- in order to allow more time to modify the terms of loans, whenever feasible.

Dubbed "Project Lifeline," the new effort is designed to extend far beyond the subprime borrowers covered by the "Hope Now Alliance" launched last August, and will be open to ALL borrowers, prime and subprime, who are 90 days or more delinquent on their mortgages.

Paulson described the foreclosure intervention concept as "a pause" -- a voluntary and temporary stopping of the clock for borrowers on the brink. The lenders who have agreed to participate include Bank of America and five other major firms who together service an estimated 50 percent of all home loans in the U.S.

Additional lenders are expected to jump on board in the coming weeks. The Hope Now Alliance currently has 25 major servicers as members, representing 94 percent of the mortgage market.

The new effort is a surprise because in the past, lenders have strenuously resisted calls from Capitol Hill and consumer groups for suspensions or cancellations of foreclosure actions. The issue has become a political hot potato as well, with Democratic presidential candidates Sen. Hillary Clinton and Barack Obama both supporting halts to mass foreclosures.

According to Paulson, Project Lifeline has nothing to do with politics but everything to do with giving distressed home owners a final chance to save their properties.

By targeting people who are 90 days or more behind, the program is aimed at borrowers literally on the verge of foreclosure, who may not have been aware that their lenders were willing to modify loan terms and try to resolve their problems.

"It is our hope," said Paulson, that such home owners will "reach out immediately for help" during the period in which lenders offer them an opportunity to restructure loans and avoid foreclosure.

Critics of the Administration said the new plan doesn't go far enough fast enough, since it does not force lenders to end foreclosures outright, nor does it specify how long the suspension periods will last -- other than a minimum of 30 days.

But banking law experts in Washington said the federal government has no legal basis to intervene or block foreclosures where mortgage contracts -- signed by lenders and borrowers -- clearly provide for foreclosure as the inevitable result of extended nonpayment.

We'll monitor how well Project Lifeline is working over the coming months, and keep you up to date.

Published: February 15, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.