U.S. Treasury Secretary Henry Paulson Thursday unveils his "teaser freezer" plan to put a five-year hold on some mortgage interest rates and help keep millions of homeowners out of foreclosure.
He's hoping to apply the plan to certain subprime mortgages underwritten between 2005 and this year, the rates for which are to reset higher starting in January. The administration is eager to show resolve in blunting the credit crisis that threatens to tip the economy into recession.
Foreclosure notices have shot up 74% so far this year, to 1.8 million. Home prices are dropping across the country, and lenders have pulled back from the freewheeling days of just one or two years ago.
More than 2 million mortgages introduced at low "teaser" rates start resetting to higher rates in January, in some cases 30% higher, putting in a bind borrowers who stretched to buy a bigger home or whose home values have dropped below their mortgage balances.
Decried as a bailout of irresponsible borrowers by some and a financial industry wrist slap by others, the plan is not mandatory for the financial industry, though more than three-quarters of lenders and servicers say they embrace the idea. The biggest, Countrywide Financial (nyse: CFC - news - people ), Wells Fargo (nyse: WFC - news - people ), Citigroup (nyse: C - news - people ) and JPMorgan Chase (nyse: JPM - news - people ), who collectively service $4.3 trillion in mortgage loans, all support the plan.
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