Project Lifeline: Collaboration or Intimidation?
Since the subprime meltdown began, the Bush administration has pledged to act to prevent foreclosures—but without interfering in the market or bailing anyone out. How is this possible? The administration’s answer: by “facilitating” what it calls “private” initiatives to prevent foreclosures. In December the administration announced, in conjunction with mortgage industry leaders, HOPE NOW—a “private sector effort” to give hundreds of thousands of subprime borrowers a free, five-year extension on low introductory teaser rates. Now, the administration has announced Project Lifeline, under which participating servicers (those who collect loan payments for mortgage investors) will offer a 30-day pause in the foreclosure process to borrowers whose mortgage payments are 90 or more days overdue.
The leader of these initiatives, Treasury Secretary Hank Paulson, repeats endlessly that these are “private” initiatives adopted because they are in “everyone’s interest”—not government-mandated schemes. But if that is truly the case, why is the government involved at all? What does it bring to the table that the market can’t?
Paulson says government is necessary because servicers face an “unprecedented volume of resets that cannot be addressed through individual, loan-by-loan negotiations.” It requires, he says, a “streamlined” approach “facilitated” by Washington.
But why? Grant for a moment the dubious premise that the entire mortgage and finance industries can’t do one or two million loan-by-loan negotiations (the anticipated volume of potential subprime foreclosures)—even though they process millions of new loan applications a year, and even though individualized processing, by optimally assessing each case, could potentially save $10s of billions. If large-scale “streamlining” is truly necessary to protect investor interests, servicers and investors are perfectly capable of “streamlining” different classes of borrowers as they judge best.