Washington's sub-prime fix expected

Treasury chief backs a partial freeze of interest rates. Investors may put up hurdles to the plan.

A federally sponsored plan to stem home foreclosures by having lenders freeze "teaser" mortgage interest rates for certain high-risk borrowers could be announced as early as this week.

Details of the program, promoted by Treasury Secretary Henry M. Paulson Jr. but left largely to the industry to finalize, were worked on over the weekend. The plan calls for immediate action by lenders and their bill-collection arms. Aiming for a longer-range solution, lawmakers from Washington to Sacramento are debating a variety of proposals.

Paulson, who has called housing problems the greatest threat to the U.S. economy, was expected to field questions about the initiative at a forum today in Washington.

Persuading lenders to address the problems is seen as politically important for Republicans. Democrats, who support tighter regulation of the mortgage business as well as changes in loan terms, accuse the Bush administration of having done too little as foreclosures rise and the interest rates on millions of sub-prime mortgages begin to ratchet higher.

Changing the terms of such mortgages made to people with weak credit is tricky, however, because Wall Street has packaged most of these loans to back securities that were sold to investors around the globe. As defaults reduce the value of those securities, the investors are fighting to limit their own losses.

A loan-modification plan "is in the best interests of both borrowers and investors simply because a performing loan is preferable to a foreclosure," said Andrew Gray, spokesman for the Federal Deposit Insurance Corp., which is involved in the discussions with lenders.

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