WASHINGTON - Treasury Secretary Henry Paulson said Monday an agreement was near on a proposal to help thousands of at-risk homeowners avoid foreclosures by temporarily freezing their mortgage rates.
One of the last remaining issues to be resolved, officials said, was the exact length of time the low-teaser rates will be frozen.
Speaking at a national housing conference and in later interviews, Paulson expressed optimism that an agreement could be reached very soon, possibly before the end of this week.
Paulson and federal regulators have been holding talks with some of the country's biggest banks, mortgage investors and consumer groups trying to strike a deal in an effort to prevent an avalanche of threatened foreclosures in the coming year from sinking the overall economy.
'We are working aggressively and quickly, utilizing available tools and creating new ones, to help financially responsible but struggling homeowners,' Paulson said in a speech to a national housing conference sponsored by the Office of Thrift Supervision.
An estimated 2 million subprime mortgages, loans offered to borrowers with spotty credit histories, are scheduled to reset to much higher levels by the end of 2008. Those resets will push the payment on a typical mortgage up by $350 per month, taking it from $1,200 currently to $1,550.
Some government regulators are pushing for the low 'teaser' rates to remain in place for five to seven years, arguing that a longer period of time is needed to allow the depressed housing market to begin recovering and for home prices to stabilize, which will allow homeowners to finance under better terms. But investors, who will see lower payments on the loans, are arguing for a shorter period of time.
Regulators indicated that the rate freezes will only be available for owner-occupied homes to avoid granting the break to real estate speculators although the exact way that determination will be made was still being worked out.
'How you structure (the rate freeze), who gets it and for how long, I think, is what people are struggling with,' Comptroller of the Currency John C. Dugan, told reporters at the conference.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., said details of the plan are likely to be announced later this week with other officials predicting the unveiling could come on Thursday.
In his speech, Paulson said he believed the mortgage industry would move to implement the new program quickly and would also adopt benchmarks to measure progress going forward. 'As a result, what was a fragmented, cumbersome process can be a coordinated effort which more quickly helps able homeowners,' Paulson said.
Banking industry executives generally praised the initiative. Daniel Mudd, chief executive at Fannie Mae, the nation's largest provider of home mortgages, called the proposal a 'positive step' that would allow many borrowers to avoid foreclosure.
But two Democratic senators running for president criticized the administration's efforts. Connecticut Sen. Chris Dodd, the chairman of the Senate Banking Committee, said the administration has 'repeatedly failed to use the tools at its disposal to protect homebuyers from abusive lending.'
And Sen. Hillary Rodham Clinton put forward her own mortgage program which called for a 90-day moratorium on further loan foreclosures and a freeze that would keep subprime mortgage rates from rising for at least five years. In a letter to Paulson, the New York senator said it was 'unfortunate that the administration has been so slow to act.'
The administration's program is being aimed at homeowners who have steady incomes and relatively clean repayment histories who could afford the lower introductory mortgage rates but cannot afford the higher adjusted rate.
The rate freeze is part of an administration program that is also emphasizing increased efforts to contact at-risk homeowners and congressional action.
Paulson said the administration was asking Congress to pass legislation that would give state and local governments more authority to temporarily broaden their tax-exempt bond programs to include mortgage refinancing. Currently, such programs are limited to new homeowners but do not include the use of tax-exempt bonds to refinance existing mortgages.
Paulson also called on Congress to pass a number of pending bills that would address the housing crisis in such ways as expanding the availability of Federal Housing Administration insured loans and boosting government oversight of mortgage giants Fannie Mae and Freddie Mac.
The administration has come under criticism from Democrats who have complained that the proposals put forward so far have been too modest in light of the crisis facing the housing industry and the threat that the housing slump could trigger a full-blown recession.
John Taylor, the president of the National Community Reinvestment Coalition, said he was concerned the government was moving too slowly to deal with the problem when what was needed was the major effort used to deal with the savings and loan crisis of the early 1990s.
'This is a major problem that is pushing us towards a recession,' Taylor said.