Treasury Secretary Henry Paulson, addressing a Housing Forum sponsored by the Office of Thrift Supervision, this morning (Dec. 3) shed more light on the Bush Administration's proposal to alleviate the impact of tightness in the credit market on subprime mortgage borrowers.

Though he did not directly address an Administration proposal to freeze teaser rates on adjustable-rate mortgages for at least two years, the details of which are expected later this week or early next week, Paulson detailed a three point plan to avoid preventable foreclosures and to minimize the impact of the housing downturn on the U.S. economy. Under that plan, Paulson said, "First, we are increasing efforts to reach able homeowners who are struggling with their mortgages. Second, we are working to increase the availability of affordable mortgage solutions for these borrowers. Third, we are leading the industry to develop a systematic means of efficiently moving able homeowners into sustainable mortgages."

The target of the plan comprises borrowers who can afford a home but are having trouble with higher adjusted rates on subprime mortgages. The Administration has broken subprime borrowers in general into four groups: those who can afford their adjusted interest rate and need no assistance; those who haven't been making payments at the starter rate and may not be able to afford a home at all and are likely to return to the rental market; those who can make payments but still seek to refinance into a more sustainable mortgage; and the aforementioned group that has good credit and steady income and can afford the payments under the introductory rate but not the higher adjusted rate.

The Administration is asking Congress to okay a proposal to allow states and municipalities to temporarily broaden their tax-exempt bond programs to include mortgage refinancings. "If enacted, this will reduce the cost of innovative mortgage programs and allow these programs to reach more struggling homeowners," Paulson said. "We in the federal government are also taking steps. This fall, HUD initiated 'FHASecure' to give the FHA the flexibility to help more families stay in their homes, even those who have good credit but may not have made all of their mortgage payments on time. An estimated 240,000 families can avoid foreclosure by refinancing their mortgages under the FHASecure plan."

"We will need an aggressive, systematic approach to fast-track able borrowers into a refinance or mortgage modification," Paulson said. "This third element does not, and will not, include spending taxpayer money on funding or subsidies for industry participants or homeowners."