Project Lifeline: Real help...or a bigger shovel for a deeper hole?
In what has got to be one of the most absurd cases of political window dressing from an administration renowned for its absurd political window dressing, someone very clever inside the Beltway, together with six of the nation's largest mortgage lenders, has come up with what they're calling "Project Lifeline." As a solution to a problem it's about on par with putting a band aid on a severed limb. But as an act of political theater? I can't help but think "Karl Rove." Anything so useless, so hollowly symbolic, so hostile to the lower middle class...and so appealingly named, has gotta have his finger prints all over it. For two analyses of this proposed legislation, here's how it was reported by Business Week, and here's kind of a wonkish economist's analysis of this blunderbuss. And these critics aren't even part of the liberal media.
For a discussion of why this is more comedy then remedy, read on...
Here's the idea: If you're 90 days or more behind in your mortgage payment, Project Lifeline could provide you with an additional 30 days reprieve in which to forestall foreclosure and maybe work something out with your lender. This is an idea that only someone who has never had anything to do with a foreclosure proceeding could come up with. Why?
In California, the law drags the foreclosure process out a statutory minimum of 111 days to move a non-judicial foreclosure through from recordation of the Notice of Default to the actual consummation of a trustee's sale. (Here are the actual statutes, Civil Code section 2920 et seq., but here is a good summary of the process.) And that's only if the homeowner is asleep at the switch and does absolutely nothing at all to resist the foreclosure. If the homeowner actually wants to keep the home, hires a lawyer or sits down with the lender in a sincere effort to negotiate a workout, the process could take quite a bit longer. Of course, since few lenders record a notice of default until a loan is at least 60 to 90 days delinquent, the real time line between the last regular payment and the arrival of the sheriff is more like 7 months plus at a very minimum. And of course, that's only if the lender is moving quickly.
But that issue aside, it really does nothing at all for either lender or borrower.
The economic realities of foreclosure do not help a lender. Believe it or not, your mortgage lender does not want your house. Why not? Because they're not in the real estate business, they're in the lending business. Their warehouses, such as they are, are built to hold greeenbacks, not brownstones, and their employees are trained to crunch numbers and hustle paper, not plant "For Sale" signs in neglected lawns and jabber about the relative merits of granite counter tops with prospective bargain hunters. Yes, there are unscrupulous mortgage lenders that make economically irrational loans in the hopes that the borrower will default and trigger a foreclosure, but on the whole that is a myth ginned up by conspiracy theorists who haven't bothered to think it through.
Here in the Bay Area, where home prices are as gravity defiant as anywhere, inventory is up anywhere from 23% to 99% over December 2006 levels, and median sales prices are down anywhere from 5% to 10% depending on the micro-market you're talking about. And it's no where near as bad here as it is elsewhere in the country. So if Countrywide wants to own overpriced houses in a plummeting and overstocked market, well, there are much easier ways to do it than through foreclosure.
And last, if a homeowner is already 90 days out, what is another 30 going to do for them? If they couldn't make one month's payment when it was due, where are they going to find four month's payment plus late fees and possible default interest? If I don't have three months' payments today, what is the realistic chance that I'm going to find four months payments four weeks from now? That's the sort of sloppy thinking that led to this mess in the first place.
In short, if you're in trouble with your home loan, don't look to Project Lifeline to do anything that you can't very easily do for yourself. If you truly believe that some more time will help you turn it around, pick up the phone and ask for 30, 60 or 90 days to get your feet back on the ground. If you're sincere, you have a good story (which includes a workable plan for digging out) and your pitch is right, chances are pretty good you'll get it.
