JIM LEHRER: We begin our economy trio with the announcement today of help for troubled homeowners. Ray Suarez has that story.
RAY SUAREZ: Treasury Secretary Henry Paulson worked with six of the nation’s largest financial institutions on the latest plan to head off more foreclosures. And he joins me now.
Mr. Secretary, welcome.
HENRY PAULSON, U.S. Treasury Secretary: Ray, it’s good to be here.
RAY SUAREZ: Let’s start with the mechanics of the plan. If you’re one of those people who’s had payment problems and you get a letter from one of these lenders saying, “You qualify for Project Lifeline,” how does it work? What’s possible now?
HENRY PAULSON: Ray, what you do is, if you get a letter, you’ve got 10 days to call. And you call — there’s a number in the letter you’re going to get that goes through the procedures, but essentially you’re going to call the servicer and you’re going to say, “I want to stay in my home.”
And then you’re going to be given a simple form to fill out with enough financial information to let the servicer determine whether there is a modification that can be done that will allow you to stay in your home.
And again, Ray, what this program does is it right now involves the servicers that are going to reach 50 percent of the market. So there’s another 50 percent that won’t be reached right now through this program, but anyone that is facing foreclosure should be picking up the phone and dialing 888-995-HOPE, and reaching out, and saying, “We want to stay in our home.”
Keeping people in their homes
RAY SUAREZ: If you do qualify and you get this breathing space from Project Lifeline, is your bank any under obligation to work with you to find a more mutually agreeable payment plan?
HENRY PAULSON: The servicer is going to want to work. There's no contractual obligation, but foreclosures aren't in the best interest of anyone, clearly not in the best interest of the bank.
So the question is, can something be worked out that will allow the homeowner to stay in their home? And the homeowner is going to have to, first of all, want to stay in the home.
And they're, secondly, going to have to show that they've got the financial capability to afford a mortgage modification.
There are going to be some homeowners that can't afford to own a home, and there are going to be other homeowners that are going to want to walk away from their home and the mortgage obligation. And those homeowners can't be helped.
RAY SUAREZ: Is 30 days really enough, if you're stuck and both sides want to work this out?
HENRY PAULSON: Well, it's enough if you're stuck, and both sides want to work it out, and you can afford to stay in your home. Now, remember, this program is aimed -- this is a last-ditch effort aimed at homeowners that are 90 days in default and late on their payments. And so this is a chance for them to stay in their homes.
And, Ray, the sad truth is 50 percent of the foreclosures are taking place without the homeowner talking with anyone, just losing the home without talking to anyone. So this is very, very important that if a homeowner wants to stay in their home to make every effort to do so.
Fixing subprime problems
RAY SUAREZ: Well, there were a lot of foreclosures last year, and it looked like we were on a pace to have a great many this year. Did we pass a threshold where the lenders that you worked with on Project Lifeline finally said, "We just can't do this, we can't have this many properties on our books or this many failed loans"?
HENRY PAULSON: Well, Ray, we've been working -- we put together the Hope Now alliance in August. And it was originally aimed at subprime homeowners where their interest rates were going to reset, starting at a lower rate and then moving up.
And so we worked to put together a fast-track program so we're going to be able to deal with a large volume of interest rate resets. That program is in place.
This one is a different program. And this is aimed at all those people that are facing foreclosure on any mortgage or home equity loan.
And you're right. I think mortgage servicers and lenders are increasingly frustrated at the fact that some foreclosures are taking place without any discussions. And, of course, foreclosures are in no one's interest.
Lenders don't want foreclosures. They're very expensive. And so if a homeowner can afford to stay in the home and wants to stay in the home, lenders want to work with them.
Getting agreement from banks
RAY SUAREZ: One homeowner advocacy program, the Neighborhood Assistance Corporation, called Project Lifeline a "public relations gimmick," because it doesn't require lenders or services to actually make the loan more affordable. What's your response?
HENRY PAULSON: I couldn't disagree more. People are working very hard. The industry is working very hard, and they're working hard where there's a lot of complexity.
These subprime adjustable rate mortgages, where their interest rate is going to reset, they're coming in a large volume. And so this is a logistical nightmare if there aren't some ways to deal with this problem and to fast-track the modifications.
So the industry has made a huge effort there. And we now have 25 servicers covering 94 percent of the market.
Now, we continue to see foreclosures taking place without homeowners talking to anyone, so this effort is another way of dealing at a different problem and giving homeowners a chance to come in and to see if there is a solution.
Now, there's not always going to be a solution. There are homeowners, some homeowners who aren't able to own a home now. And there are others, Ray, that just don't want to continue to own a home and accept their mortgage obligation.
RAY SUAREZ: In the fourth quarter of last year, the terms were modified on about 140,000 homes, but more than three times as many, just over 450,000, went into foreclosure. You're saying you're convinced the banks want to change that number around?
HENRY PAULSON: Yes, Ray, let me go through the history. We put together this Hope Now alliance in August. And in the fourth quarter, the number of modifications doubled.
Then in early January, we announced this new fast-track program to accelerate the modifications. And there was a lot of work that had to be done on this. We had to get investors together with the servicers to get them all together.
And we had to come up with ways around certain technical obstacles. We needed to get some accounting guidance from the SEC, which came out January 8th.
We now have a program that's going to allow the industry to deal, in a much better fashion, with the volume of interest rate resets. And so I think we should be more successful.
We've now got 94 percent of the industry participating in that program. It's not a silver bullet, but I think it's going to be more successful and we're going to monitor it very closely.
Taking preventative measures
RAY SUAREZ: The announcement of the program said it was meant to serve the needs of the seriously delinquent. What if you're not seriously delinquent, but you know, either from a re-cast or some terms of the loan, that you're going to be in trouble maybe not next month, but three months from now?
HENRY PAULSON: That's much, much more important, frankly, and that's where we've aimed our efforts to date. To date, the Hope Now alliance is focused on those borrowers and sending out letters 120 days before there's a reset.
And we've been advertising. And we have a number, as I said, 888-995-HOPE, for anyone that thinks they're going to have a problem.
This latest effort is aimed at those that are just on the verge of losing their home, that haven't called anyone to date, haven't talked to anyone to date. And this is one last-ditch effort to get to them and say, "Please, please, please, if you want to stay in your home, no one is going to help you unless you reach out and ask for help."
RAY SUAREZ: There was a headline in the newspapers today, "Mortgage Crisis Spreads Past Subprime Loans." Are there people who were conventionally qualified buyers who are now, because of these problems, finding it harder to re-fi, finding it harder to get a new mortgage if they want to move?
HENRY PAULSON: Ray, what we're dealing with right now is a housing decline in this country, a housing slump, so the issue goes way beyond subprime, and it affects many different borrowers.
I will say, though, that 93 percent of mortgage-holders in this country are making their interest payments on time. But this is a broader issue, no doubt about it.
RAY SUAREZ: Secretary Paulson, thanks a lot for joining us.
HENRY PAULSON: Thank you, Ray.