Critics say Project Lifeline is 'rhetoric'

Melanie and Steven Fugate have been going through the gut-wrenching foreclosure process on their Carol Stream home.

An adjustable rate mortgage didn't do them in; unemployment and illness did.

So would President Bush's new Project Lifeline announced Tuesday help the Fugates? The program offers homeowners who are 90 days or more in arrears with their mortgage a 30-day reprieve, or pause, to work a new deal out with their lender.

"It wouldn't help our situation," said Melanie Fugate. "We just don't have the money any more and we still wouldn't have it in 30 days. We don't have any income. Would the federal government work with us until my husband gets on disability? That could take up to two years."

Professionals representing the mortgage industry and consumers all slammed Project Lifeline as "rhetoric." Offering financially troubled homeowners only 30 more days won't stop the tide of foreclosures, they say.

David Siegel, a Wheeling attorney specializing in bankruptcy and foreclosures on behalf of homeowners, said Project Lifeline was "nonsense" and "a fantasy."

"It's going to help very few people and to the slightest extent. Thirty days is nothing, a drop in the bucket," Siegel said.

U.S. Treasury Secretary Henry Paulson Jr., a Barrington Hills native, said Tuesday six of the nation's largest financial institutions are participating in Project Lifeline. The program is for homeowners who are 90 days or more in arrears on their mortgages. They will be given an extra 30 days to work out a new payment plan with their lender.

"For whatever reason they have not yet taken action; our hope is that today's announcement will reach them and they will reach out immediately for help," Paulson said during a press conference in Washington, D.C.

"Of course, there will be homeowners who still take no action, and some will simply walk away from their mortgage -- particularly those borrowers who put little or no money down and whose mortgage exceeds their home value. No program can bring every struggling borrower into the counseling and evaluation process, and we cannot help those who choose not to honor their obligations."

The program is part of the government's ongoing efforts to help homeowners in or approaching foreclosure.

Irvine, Calif.-based RealtyTrac is expected to announce today foreclosures soared about 50 percent in 2007 compared to 2006 in the Chicago metropolitan area.

The region had 1.64 percent of households in foreclosure based on population. That places Chicago at No. 30 nationwide with 73,469 foreclosure filings on 50,350 properties. Fifteen of the metro areas in the top 20 of foreclosure rates are in four states: California with six, Ohio with four, Florida with three and Michigan with two.

While the 30-day moratorium sounds good, is it enough for those struggling, asked Michael Seng, professor and executive director of the Fair Housing Program at John Marshall Law School in Chicago.

"Proposals such as these do not solve the basic problem of seeing that borrowers get proper counseling before they enter into a loan or refinance an existing loan," said Seng. "In other words, we need both a short-term and a long-term fix."

Anything to help consumers in such a difficult time is good. But the 30-day delay could hurt mortgage servicers, said Marve Stockert, executive director of Lombard-based Illinois Association of Mortgage Professionals.

"When loans are made today, 95 percent of them are invested in securities that are purchased worldwide," said Stockert. "You don't realize what the lender has to do to meet requirements of loans sold into securities. It's easy for someone to modify a mortgage and change the interest rate, but that means pulling out of the securities, changing documents and then re-selling the loan."

Project Lifeline doesn't provide as much flexibility as people think, Stockert said.

"It's all rhetoric," Stockert said of the program. "On the surface it sounds good, but it's like shooting a gun. Do I shoot the gun now or wait 30 days from now. The gun is still going to get shot."

Homeowners seeking more information on Project Lifeline can call toll-free 1-(888) 995-HOPE.

Chris Barnes, mortgage adviser with Biltmore Financial Bancorp Inc. in South Barrington, said the taxpayer will ultimately pay for the foreclosure mess.

"I think lending standards have been too lose in the last few years and have allowed people to get into mortgages that they really had no business getting into," said Barnes. "I think the banks are at fault for the loose guidelines they established, but I also think that the people taking out the mortgages are at fault too for not being realistic about what they could or could not afford. So in this case, I think the lenders are doing a noble thing by giving people a breather. But if these people are 90 days late on their mortgage. Do we realistically think that they will ever get caught up?"