US Treasury, Loan Servicers to Target Borrowers

Over 200,000 troubled borrowers will receive notices from mortgage servicers advising them to seek new loan terms before they face foreclosure under a plan announced on Wednesday by U.S. Treasury Secretary Henry Paulson.

Under the plan, borrowers who have missed a payment will get a one-page letter offering advice and help under the letterhead of HOPE NOW, the Treasury-sponsored initiative.

“The housing and mortgage market decline is still unfolding. Resetting ARM rates are one factor which will play out over the next 18 months,” Paulson told reporters after meeting with representatives of the home loan industry.

A spike in failed adjustable-rate mortgages and subprime loans to borrowers with damaged credit have rattled finance markets in recent months. In one scenario envisioned by Merrill Lynch, a quarter of subprime loans will end in default, wiping out $146 billion of wealth as home values decline in coming years.

The mailing run will begin November 19, and the letter will offer a 1-800 number that homeowners can dial for advice.

Terms on only 1 percent of shaky subprime home loans were changed in the first nine months of the year, according to Moody’s Investors Services. Consumer groups have argued that lenders and servicers must do far more to change the terms of troubled loans in order to prevent foreclosure.

Earlier this month, Paulson announced that a coalition of mortgage service companies, counselors and trade associations were banding together to offer help to hard-pressed homeowners.

Wednesday’s announcement was to be the first public follow-up on that initiative.

U.S. Treasury, loan servicers to target borrowers
By Patrick Rucker | Reuters