Deal set to hold housing rates

Details are expected today on a plan to freeze for 5 years some subprime mortgages

WASHINGTON -- The Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.

The five-year moratorium represents a compromise between banking regulators' desire for a time frame of up to seven years and mortgage industry requests that the freeze last one or two years, according the aides, who asked not to be identified because details had not been released.

The rate-freeze plan, which was also being reported by Bloomberg News and The New York Times, apparently would apply to borrowers with loans made in early 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said President Bush will discuss the agreement today at the White House, and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a news conference this afternoon with mortgage industry officials.

Treasury also announced that there would be a technical briefing to explain more of the proposal's details.

Paulson, who has been leading the effort to craft a plan, said Monday that the program would only be available for owner-occupied homes -- to ensure the break is not given to real estate speculators.

The plan emerged during talks among Paulson, other banking regulators, banks, mortgage investors and consumer groups trying to address a flood of foreclosures expected as an estimated 2 million subprime mortgages reset higher after introductory rates end.

In many cases, the higher rates would boost monthly payments by as much as 30 percent, making it very difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to the market researcher RealtyTrac. With home loan defaults still rising, the trend is expected to worsen next year.

Help from above

The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis.

However, Paulson and other administration officials became convinced that the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed.

They opted for a proposal that is much like a plan put forward in October by Federal Deposit Insurance Corp. chief Sheila Bair.

Paulson and other federal regulators began holding talks with some of the country's biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical subprime loan -- those offered to borrowers with poor or limited credit histories -- the rates for the first two years were about 7 percent to 9 percent. But after two years, those rates were scheduled to reset to 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, that could add $350 to the monthly payment, greatly raising the risk of loan defaults for homeowners already struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.