WASHINGTON — Six major lenders, worried about the deepening mortgage crisis, said Tuesday that they would grant a 30-day freeze on many foreclosures to consider delinquent borrowers' pleas for lower monthly payments.

Standing with bank representatives, Treasury Secretary Henry Paulson said Project Lifeline is needed because the 2-year-old mortgage mess is still threatening to separate many Americans from their homes.

"The worst isn't over," Paulson said. In fact, "the worst is just beginning."

Paulson, along with Housing and Urban Development Secretary Alphonso Jackson, held a news conference to call attention to the program. They urged other lenders to participate and borrowers to step up.

"If someone is willing to make a call, to reach out, (then) there's a chance they can save their home," Paulson said.

Jackson called Project Lifeline a "responsible, timely effort" to curb the foreclosures that have been unnerving financial markets and weighing down the U.S. economy.

The six lenders — Calabasas-based Countrywide Financial Corp., Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Co. and Washington Mutual Inc. — have designed the program to help any homeowner in trouble, not just subprime borrowers.

They have agreed to immediately send letters to homeowners more than 90 days delinquent on their house payments. The letter would spell out the procedures for borrowers to "pause" the foreclosure process.

The homeowner would have 10 days to respond and provide additional financial information. The lender could use that information to consider new payment options. In some cases, foreclosures would go forward, but in others, lower payments might be worked out.

The lenders could not say how many people might get new loan terms, but reported that "hundreds of thousands" of homeowners are at least 90 days delinquent in their payments.

Not everyone was optimistic.

Extending the foreclosures by a month is not going to help — it's simply going to stall the process, said Somnath Basu, professor of finance at California Lutheran University in Thousand Oaks.

"It's sort of like putting your head in the sand," he said.

Borrowers' problems are not so shallow that their troubles are going to go away in a month, he said.

When participating lenders reduce interest rates for troubled borrowers, Basu said he believes that it would penalize the lenders' depositors with higher fees.

"If they reduce the loan rate, they go out of business — it would be like suicide for them," he said.

Most likely, the lenders would be compensated through a government subsidy, which would mean another cost imposed on taxpayers, to people who did nothing wrong, Basu said.

Mary Coffin, executive vice president of loan servicing for Wells Fargo Home Mortgage, countered his assertion.

"There's no government funding whatsoever," she said during a conference call Tuesday.

Modifications possible

Although Project Lifeline is new, large servicers such as Wells Fargo are constantly looking at modifications, she said.

"This is not new monies or new programs," she said. "We always have had the capability to modify an interest rate."

Today, phones at Wells Fargo have been ringing off the hook because of inquiries about Project Lifeline, she said. Wells Fargo will launch Project Lifeline next week.

Basu said he thinks that helping those who made bad decisions is sending the wrong message about financial literacy.

"I really think we need to sort of take the shot," he said. "Let's turn around, and next time, start thinking downstream so it doesn't happen again."

The government shouldn't bail people out for making bad decisions, said Peggy Crawford, professor of finance at Pepperdine University in Malibu. But if there was some element of fraud or misunderstanding during the underwriting process, those duped borrowers should be helped, she said.

The program could buy some time for good borrowers who got into an adjustable-rate mortgages without understanding the implications of a reset, she said.

"The real question is whether subprime borrowers, even with 30 days, will be able to adjust the mortgage to the point where they'll afford them," Crawford said.

The six lenders involved in the effort account for about half of the U.S. mortgage market. They are members of the Hope Now alliance of lenders, trade groups and counselors. The group was formed last year to identify struggling borrowers and help them find ways to avoid foreclosure.

Paulson has opposed calls for a mandated, across-the-board moratorium on foreclosures. But in December, he negotiated a deal to freeze rates for five years on some subprime loans. He now wants lenders to go further by lowering loan terms for the long term, even on some mortgages not rated as subprime.

Floyd Robinson, who heads Bank of America's mortgage business, said the program relies upon borrowers stepping forward to develop workout plans.

"Homeowners can only take advantage of this program by taking action; they must respond when they hear from us," he said.

Many Democrats and public interest groups have been critical of the Bush administration for not doing more sooner to address problems tied to the subprime lending practices that flourished between 2002 and 2005.

During that time, many lenders offered mortgages to borrowers with spotty credit histories or irregular income. Typically, the loans offered low initial interest rates to hold down the monthly cost. But over time, the rates ratcheted up.

Over the past two years, millions of loans have been resetting to much higher rates, making it impossible for some homeowners to keep up. As a result, foreclosures have soared, driving down home prices as properties sit vacant. In 2007, home values fell nationwide for the first time since the Great Depression.

The Federal Reserve estimates that about 2 million more homeowners will face rising monthly payments over the next two years as their loans reset to higher interest rates.

Critics say the voluntary plans backed by the White House are too limited to have much of an effect on an enormous problem. For example, the Center for Responsible Lending in Washington says that in the third quarter of 2007, lenders initiated about 213,000 foreclosures on subprime loans, but offered meaningful loan "modifications" on only 28,000.

Efforts called inadequate

John Taylor, president of the National Community Reinvestment Coalition, dismissed the Hope Now efforts as inadequate. "Borrowers need help now, not just more hope," he said. "Almost weekly announcements about small successes and minor program modifications confirm the program is not working."

Taylor's group, composed of more than 600 community-based organizations, says it wants the federal government to purchase, at a discount, the mortgages held in securitized pools. Once the government holds the loan portfolio, it could reduce all of the loan terms "in a meaningful way to create long-term affordability," the group said.

Although Paulson endorses the voluntary efforts that the White House has been promoting, he acknowledged that the problems are profound. "None of these efforts are a silver bullet that will undo the excesses of the past years," he said.

— Star staff writer Jenni Mintz contributed to this report.

On the Net: http://hopenow.com