Banks to pause delinquent mortgage foreclosures

By Patrick Rucker and David Lawder

WASHINGTON (Reuters) - Six top mortgage companies on Tuesday launched a program aimed at staving off foreclosure for seriously delinquent borrowers in the hopes that new, more affordable loan terms can be worked out.

"Project Lifeline," backed by the U.S. Treasury and the Department of Housing and Urban Development, would pause foreclosure proceedings for borrowers more than 90 days in arrears while servicers determine whether they could make payments under new terms, the six firms said in a statement.

The effort would cover all types of home loans, including home equity loans and second liens, unlike an earlier plan aimed at freezing interest rates for subprime mortgage holders who cannot afford payments that reset to higher levels.

"These are homeowners on the brink of losing their homes," Treasury Secretary Henry Paulson said. "Every one we save will make a difference. If someone is willing to make a call to reach out, there's a chance we can save their homes."

Democratic lawmakers said the effort did not go far enough to help borrowers stuck with mortgages they cannot afford.

"This plan, while a step in the right direction, will not stem the tide of the millions of foreclosures we are facing in the coming months," said Illinois Sen. Richard Durbin, a member of the Democratic leadership.

The plan unveiled Tuesday is being undertaken by six mortgage lenders that service about 50 percent of U.S. mortgages -- Bank of America (BAC.N: Quote, Profile, Research), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), Citigroup (C.N: Quote, Profile, Research), Countrywide Financial CFC.N, Washington Mutual (WM.N: Quote, Profile, Research) and Wells Fargo (WFC.N: Quote, Profile, Research).

All are members of the Hope Now alliance of lenders, servicers and investors that had agreed to the Treasury-brokered rate-freeze plan in December.