WASHINGTON — Hammered by bad publicity and rising foreclosures, the financial services industry is moving toward broader loan workout efforts.
The Hope Now alliance and the Treasury Department are expected to announce today a voluntary freeze on certain foreclosures and a broader outreach effort to delinquent subprime borrowers, sources said. Countrywide Financial Corp., meanwhile, struck its own deal with a community group Monday to help more than just subprime hybrid mortgage borrowers.
The Countrywide deal and the prospective Treasury announcement underscored an understanding in the industry that efforts to date have been insufficient to stem subprime problems, observers said.
"There's going to be a need for assistance for a wide swath of loans much broader than subprime," said Brian Chappelle, a partner at Potomac Partners. "I do see it going broader because the problem is broader."
The loan modification efforts underway have come under broad fire from lawmakers, the media, and consumer groups that have said they come too late and are too narrow.
This has prompted a flurry of hints from Treasury officials that they would broaden the Hope Now plan, which currently offers five-year interest rate freezes on a narrow segment of subprime hybrid adjustable-rate mortgages. Consumer groups have also detected a change at lenders and servicers.
"We're seeing a lot more, and we're finalizing discussions and agreements with a number of servicers," said Bruce Marks, the chief executive of Neighborhood Assistance Corporation of America.
Still, it was unclear how much impact today's planned Treasury announcement would have.
At a press conference with Treasury Secretary Henry Paulson, Hope Now members, including Bank of America Corp. and JPMorgan Chase & Co., are expected to announce a plan, dubbed Project Lifeline, that calls for mortgage servicers to consider halting foreclosures on subprime borrowers who are at least 90 days delinquent.
The plan, which has been in the works for two months, has been softened to ask servicers to "consider" the foreclosure freeze, not to require it, as the initial language said, according to sources.
Mr. Marks said the plan's voluntary nature undercuts its effectiveness. "There's no set restructuring," he said.
"It's a public relations gimmick... It's no different than what servicers or lenders do today. Until they require it, then this is not a significant event."
Some economists agreed it may do little to alleviate the problems.
"The various efforts to help hard-pressed homeowners remain in their homes … are very laudable but threaten to be overwhelmed by plunging housing values and rising unemployment in an increasing number of areas across the country," said Mark Zandi, the chief economist and a co-founder of Moody's Economy.com Inc. "Mortgage defaults and foreclosures will continue to increase until mortgage credit begins to flow more freely and the job market stabilizes."
The plan is also expected to call for outreach to more delinquent subprime borrowers. The current loan modification plan was limited to current borrowers facing an interest rate reset they could not afford.
Steve Bartlett, the president of the Financial Services Roundtable, said the expanded plan, too, might be added to later.
"It's an expansion, and I think you'll see further expansion," he said. "This is a massive area. This is the largest and most pressing economic problem in the world today."
Certain Hope Now members, including the Calabasas, Calif.-based Countrywide, have also announced their own separate initiatives.
The thrift company said Monday that it would partner with the Association of Community Organizations for Reform Now to work with all subprime loans, not just hybrid adjustable rate mortgages.
The company also pledged to rework loans for borrowers across various stages of delinquency, not just those that are current on payments.
Joseph Mason, an associate professor of finance at Drexel University's LeBow College of Business and a former Office of Comptroller of the Currency economist, said the Countrywide announcement shows that the industry is not relying on Hope Now to figure out modifications.
"The industry is still trying to stay one step ahead of Hope Now," he said.
