Debunking "Project Lifeline"

BusinessWeek writer and economics editor Peter Coy is none too impressed with Project Lifeline, the program recently announced last week to stem foreclosures for borrowers behind in payments but may simply be another example of federal government propaganda that attempts to slap yet more drugstore-quality lipstick on a squealing pig (my analogy, not Peter's):

As the foreclosure mess worsens, there's mounting public pressure for stronger action to keep people from losing their homes. But President Bush and his Cabinet have resisted the more aggressive forms of intervention, preferring to rely on the private sector as much as possible. That's raising questions about whether the White House is fully aware of the severity of the housing crisis. The Bush Administration's latest initiative, Project Lifeline, exemplifies its hands-off approach to the workings of the market. In fact, it's not a government program at all. It's a statement of intent by six major lenders—Bank of America (BAC), Citigroup (C), Countrywide Financial (CFC), JPMorgan Chase (JPM), Washington Mutual (WM), and Wells Fargo (WFC)—that they will stop the clock on foreclosure for 30 days for borrowers who are identified by the lenders as good candidates for a home-saving workout...

Actually, Project Lifeline isn't a new rope at all. Lenders have already been patient with people who appear to have a reasonable shot of making mortgage payments, simply because the banks don't want to repossess large numbers of houses, especially in this soft market. In a Feb. 15 interview, BofA spokesman Terry Francisco acknowledged that the bank would not be making any major change to what it has already been doing. "Here, all six of us are banding together on the same step-by-step approach. We're trying to make it transparent and easy to understand," he says.

There's no sign the White House is throwing much weight behind the private-sector proposal, either. It doesn't appear to be mentioned at all on the Web site of the Housing & Urban Development Dept., even though HUD Secretary Alphonso Jackson was one of the people who announced it. It is only mentioned briefly in a statement on the Treasury Dept.'s site. And Google search for "Project Lifeline" on Feb. 15 turned up no site for the project—though it did offer one for an organization that assists "communities that are suffering from an inadequate supply of water and poor sanitation caused by war, poverty, and natural disaster."

Actually, it's ProjectLifeline.org that's run by the Heritage Foundation, a conservative think tank. Hmm...coincidence? But I digress:

Project Lifeline appears even less substantial than Hope Now, an earlier Bush Administration initiative aimed at more credit-worthy borrowers. Treasury Secretary Henry Paulson has refused to say how many people benefited from loan workouts arranged through Hope Now. Only about 10,000 delinquent borrowers have even been advised to seek workouts in the past two months via a hotline (888 995-HOPE), The Wall Street Journal reported, citing the nonprofit Homeownership Preservation Foundation, which operates the hotline...

...to critics, the problem with relying on purely private solutions is that lenders simply can't do much more than they're already doing without jeopardizing their own profitability. Critics argue that given the impact on the entire country, including neighbors whose home values are dragged down by foreclosures on the block, the mortgage crisis requires a national solution.

The Center for American Progress, a Democratic-leaning think tank, is pushing a two-part plan. One part would have Fannie Mae (FNM), Freddie Mac (FRE), and Federal Housing Authority lenders buy up big pools of mortgage-backed securities at a discount and then replace the underlying mortgages of eligible borrowers with new, affordable fixed-rate, 30-year loans. The other part would make government grants to nonprofits to buy foreclosed properties in stricken neighborhoods, fix them up, and rent them out.