The plan seeks to address the rising tide of foreclosures by making it easier for lenders to freeze the "starter" interest rate for certain borrowers for five years, according to a document being circulated by the Treasury Department.
It includes an agreement, brokered by Bush administration officials, between the loan servicers who would administer a rate freeze and the investors to whom the mortgage debt has been sold. The agreement sets conditions under which rates on certain loans could be temporarily frozen. It isn't binding, but because it has the support of major investors, it is expected to give loan servicers much more flexibility to quickly rework some loans and direct other borrowers toward refinancings.
The plan applies to loans originated between Jan. 1, 2005, and July 31, 2007, that reset between Jan. 1, 2008, and July 31, 2010. Office of Thrift Supervision Director John Reich said this week that the plan could help "tens of thousands" of homeowners.
For other borrowers who are in somewhat better shape, the White House also wants to speed up refinancings, through the Federal Housing Administration and other sources. For example, the administration wants to allow state and local governments to use more tax-exempt-bond programs to fund refinancings, a move that Congress would have to approve through a change in tax law.
One of the biggest points of debate has been how long to freeze rates. Investors favored a shorter time frame, perhaps two or three years, while Federal Deposit Insurance Corp. Chairman Sheila Bair favored a much longer period. Investor groups have faced growing pressure to be flexible, however, from both the administration and Congress.