Project Lifeline – The Latest Government-Issued Foreclosure Band-Aid

As the mortgage crisis continues its downward spiral and spreads from subprime to all home loan categories the government has just launched its latest help program. But is it a good deal for homeowners or just another small bandage to stem a gushing wound?

This new program called Project Lifeline is designed to assist all borrowers, not just homeowners stuck in high-rate subprime loans. It allows seriously overdue homeowners to suspend foreclosures for 30 days while lenders try to work out more affordable loan programs for them.

The new plan applies to ‘seriously delinquent’ homeowners whose mortgages are 90 days or more past due. According to the Mortgage Bankers Association this totals more than 1.3 million home loans as of the end of the third quarter of last year.

Project Lifeline involves the 6 largest companies in the mortgage industry including Wells Fargo, Washington Mutual, Citigroup, Bank Of America, JP Morgan Chase, and Countrywide Financial.

All six of these companies are already involved in Hope Now, a program assisting homeowners with high-cost subprime mortgages by freezing their adjustable ‘teaser’ interest rate for five years. Hope Now was a key component in the Bush administration’s plan to help troubled homeowners weather the foreclosure storm.

“Project Lifeline is a valuable response, literally a lifeline, for the people on the brink of the final steps of foreclosure,” said Secretary of Housing and Urban Development Alphonso Jackson.

That sounds pretty good but is it really true? Does Project Lifeline go far enough to provide much needed relief to homeowners trying to stay afloat? And who are they buying more time for anyway – homeowners or the banks?

Only time will tell. Any mortgage term modifications or repayment plans are purely discretionary so the banks still hold all the cards. If these lenders are not aggressive enough in offering affordable long-term solutions the program will fail. And even with improved loan terms there’s always the issue of the declining real estate values in many areas of the country that will leave some homeowners owing more than their home’s worth. At what point does it make more sense to walk away?

Many consumer groups believe that both Hope Now and Project Lifeline fall short because the solutions offered are only short-term. For many homeowners these short-term loan modifications and repayment plans only delay the inevitable. The best solution is offering stressed borrowers refinance terms at lower fixed rates which lenders will be very reluctant to do.

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