by Gina Pogol

As the toll of home foreclosure on the US economy rises, a group of mortgage lenders is stepping up its mortgage foreclosure prevention efforts. Hope Now, a volunteer effort involving mortgage lenders, investors, servicers, and community groups, is implementing new guidelines in an effort to keep more families out of foreclosure and in their homes.

Foreclosure Prevention: New and Improved

Hope Now's initial efforts were criticized by some as a "too little, too late" approach. Efforts to implement foreclosure alternatives were often stalled by conflicts between first and second lien-holders, communication difficulties, and lender bureaucracy. Major changes to current policy, expected to be put in place within 60 days, include the following:

• Better Communication: Borrowers can expect improved communication efforts from their lenders. While part of the initial Hope Now effort was a push to establish contact with delinquent borrowers, homeowners actively trying to get help from their lenders weren't always kept in the loop. New guidelines include acknowledging receipt of workout requests within 5 business days and granting a decision with 45 days. Part of this communication includes sending out letters to holders of subprime adjustable rate mortgages 120 days before the rates reset, giving borrowers time to refinance into a fixed rate before finding themselves in trouble.

• Less Opposition from Secondary Lien-holders: A major roadblock in restructuring mortgages is that the holder of secondary financing often refuses to approve a workout. This lender has little to gain by approving changes and doesn't want to give up its rights in the event of a foreclosure. This is changing, with secondary lien holders agreeing in certain circumstances to give up all claims to the second mortgage--a major step in making workouts, for example refinancing adjustable rate mortgages to fixed rate loans, more feasible.

• More Time for Short Sales: Even borrowers who find buyers for their property aren't guaranteed that they can dodge a foreclosure. Bickering between multiple lenders financing the property, the insistence of lenders on getting offers from several buyers before even considering them, and the bureaucracy involved in pushing the paperwork through have derailed many short sales and forced the would-be sellers into foreclosure anyway. Under new guidelines, lenders will suspend foreclosure actions to give borrowers time to complete a short sale if there's one in the works.

Not All Things to All People

Most borrowers, for example those with adjustable rate mortgages that have reset to higher rates, are offered repayment plans to help them catch up on their mortgage arrearages. Critics charge that troubled homeowners would be better served by lenders restructuring the mortgages to lower the interest rate, drop the principal balance, or both. Hope Now does not claim to be able to help all borrowers but states that it has helped 1.6 million borrowers avert mortgage foreclosure.