Treasury Secretary Henry Paulson said Monday he is confident there will soon be an agreement to help thousands of homeowners avoid mortgage defaults by temporarily freezing their interest rates.
Paulson told a national housing conference that this effort involved a "pragmatic response" to current realities as the economy goes through the worst housing slump in more than two decades. The number of homeowners struggling to meet higher payments because their initial introductory rates are resetting is currently soaring.
Paulson and other top Treasury officials have been holding talks with major players in the mortgage industry over the past several weeks to hammer out an agreement that would freeze the lower introductory rates to keep them from resetting to higher levels for a period of years.
"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.
One of the outstanding issues is how long the freeze will last. Some government regulators are pushing for five to seven years but investors, who will see lower payments on the loans, are arguing for a shorter period of one to two years.
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.
Paulson said he believed the disagreements can be resolved without delay. Some expect the administration to unveil the completed deal later this week, but Paulson was not as specific in his remarks, saying only, "I am confident they will finalize these standards soon."
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.
The new 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 a three-pronged program the administration is pushing that also includes stepping up efforts to contact at-risk homeowners and encouraging creation of new programs that would embrace more affordable loans to homeowners who would like to refinance to mortgages with lower payments.
Paulson said that the administration is putting forward a new proposal to allow state and local governments more authority to temporarily broaden their tax-exempt bond programs to include mortgage refinancing.
He 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