By Renae Merle
Washington Post Staff Writer
Tuesday, June 17, 2008

Major mortgage lenders have agreed to streamline and speed up the process for assisting distressed homeowners, according to new guidelines set to be released today.

The guidelines will address the complaints of homeowners and housing counselors that even as foreclosures climb, lenders remain difficult to work with and can take months to approve a request or even acknowledge that a homeowner has asked for help. In the meantime, borrowers fall further behind in their payments and grow more frustrated.

Under the guidelines, the lenders would acknowledge a borrower's request for help within five business days and approve or deny a request within 45 days of receiving the application, according to people familiar with the agreement. Lenders will also update borrowers about the status of their application after 30 days.

The voluntary guidelines are the result of months of discussions among lenders, loan servicers and government officials. They encourage lenders to have enough staff to respond to calls from homeowners and housing counselors. They also call for lenders to consider pausing the foreclosure process once a homeowner has contacted them. Many lenders had already agreed to a similar plan announced in February by Hope Now, an alliance of lenders and nonprofits.

That same alliance is set to announce the new guidelines today. A spokesman for the Treasury Department-backed group declined to comment yesterday.

The agreement stems in part from closed-door meetings between lenders and Treasury staff last month about how homeowners can be better helped. It comes as the Senate prepares to vote on legislation to rescue hundreds of thousands of homeowners from foreclosure, including by allowing the Federal Housing Administration to help at-risk borrowers trade exotic mortgages with escalating monthly payments for more affordable loans.

Lenders' efforts since last year to help distressed homeowners have received mixed reviews. Hope Now claims that its efforts have resulted in nearly 1.6 million loan workouts since July 2007 and that increasing numbers of homeowners have received a significant modification to their loan.

But consumer advocates have said that lenders still rely too heavily on repayment plans to get homeowners out of financial distress temporarily and have not done enough to address the long-term affordability of their loans.

Last week, a top federal regulator said banks and mortgage firms were not providing enough information about the number of subprime borrowers they are helping and the rate at which homeowners are falling into foreclosure. As part of the new guidelines, lenders have agreed to track and report on their progress. Hope Now officials have also said they soon would publish detailed data about the type of help lenders are giving homeowners.

The guidelines will formalize various initiatives the industry has announced over the past few years, said Janis Bowdler, associate director of the wealth-building policy project at the National Council of La Raza.

"There has never been anything more than a press release sometimes. In terms of accountability and working together, it is significant that they put pen to paper," she said. Bowdler had not been briefed on the guidelines, but commented on the terms described by a reporter. "We have to wait and see what level of accountability they hold themselves to since it's still voluntary."