US Treasury Close On Mortgage-Freeze Plan
The U.S. Treasury Department is close to announcing a plan it is brokering with mortgage industry leaders to hold interest payments steady for many subprime mortgage borrowers facing foreclosure.
Treasury Secretary Henry Paulson discussed the plan at a meeting with top banking regulators and industry representatives Thursday and is expected to announce details of the proposal as early as Wednesday, sources familiar with the meeting told Reuters.
As envisioned, the plan would freeze mortgage rates for stressed borrowers who took out loans with low teaser rates that are due to reset to a much higher level.
During the five-year U.S. housing boom that ended in 2005, millions of so-called subprime borrowers with poor credit took out loans with low initial rates. Many of these loans are entering default after they reset to much higher rates.
Financial markets have been spooked in recent months as defaults have risen and many investors are struggling to get a handle on the value of these sinking loans.
In an interview with BusinessWeek magazine, Paulson said he hoped to have a final industry consensus on a loan modification plan before the end of the year.
“We’ll have broad agreement on criteria that will make it easier to modify mortgages in the volumes we need,” Paulson was quoted as saying in the magazine’s Dec. 10 issue.