Editorial: Stopping foreclosures

Thursday, Oct. 25, 2007 | 7:46 a.m.

The biggest mortgage company in the United States took a major step toward addressing the subprime lending crisis Tuesday, announcing it would offer to restructure or refinance $16 billion in adjustable-rate loans.

Countrywide Financial said 82,000 homeowners will be eligible for the plan, which would drop the interest rate for homeowners who are in peril of losing their homes because of skyrocketing interest rates.

"None of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset," Countrywide CEO David Sambol said in a statement.

The lender's actions are hardly altruistic. It is set to announce its third-quarter earnings statement and is expected to take a big hit because of the housing market's downturn. This move might help the company salvage many of the loans that might otherwise have gone into foreclosure. Reworking the loans will mean the company will have to rework its projected earnings downward, but that is better than having a stable of foreclosed homes in a sour market.

Other lenders have already figured that out, including Washington Mutual, which pledged $2 billion to refinance adjustable-rate mortgages. And EMC Mortgage, a subsidiary of Wall Street financier Bear Stearns, is working with borrowers to modify the terms of subprime loans.

However, Countrywide's plan is the one that will make waves in the industry.

"This is a big step," Bruce Marks, chief executive of the housing advocacy group Neighborhood Assistance Corp. of America, told Bloomberg News. "Countrywide sets the standard for servicing and how lending gets done."

Countrywide is the face of the mortgage industry, and we hope it will lead others to similar actions on subprime loans, which threaten to sink the housing market further. Working with borrowers is a positive step for everyone - lenders can stay in business and homeowners can stay in their homes. It could also help stem the tide of foreclosures and slow the problems in the housing market and the economy.