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New effort to modify at-risk home loans

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This new relief effort comes none too soon. The national foreclosure rate has been rising to record levels, and the upward trend has not abated.

The problems have been concentrated in the so-called subprime loans, but defaults have been rising in prime loans as well. And for one risky class of loans – adjustable-rate mortgages (ARMs) in which the borrower has the option to pay none of the principal balance at the start of the loan – a wave of loan adjustments or "resets" looms in the coming year and beyond.

"These new guidelines will greatly expedite the process of preventing foreclosures," Faith Schwartz, executive director of Hope Now, said in a statement Tuesday.

Hope Now members account for roughly two-thirds of US mortgages.

For the first time, the new guidelines establish a common, streamlined timetable that will be used by each participating mortgage servicer when working with a homeowner to prevent a foreclosure, the group says.

The guidelines involve a common set of principles on alternatives such as loan modifications or repayment plans – and the treatment of second-mortgage holders.

In recent months, they have been expanding the number of loan "workouts," but the effort hasn't kept pace with the rising tide of foreclosures. A rising share of the workouts involve "loan modifications," such as a reduction of interest rate or loan balance. Still, these "loan mods" represent less than half of all workouts.

In so-called "piggyback" loans, a borrower owes the most to one primary lender, and a smaller amount on a second mortgage. Together, the two loans may represent 100 percent of the home's purchase price.

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