Paulson says mortgage plan is near

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," said Comptroller of the Currency John Dugan.

Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC), said details of the plan are likely to be announced later this week with other officials predicting the unveiling could come on Thursday.

The new program is being aimed at homeowners who have steady incomes and relatively clean repayment histories.

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.