Treasury Secretary, Industry Executives Consider Subprime Rate Freeze

U.S. Treasury Secretary Henry Paulson recently met with participants from different areas of the mortgage industry to discuss a plan to freeze interest rates on some subprime mortgages in anticipation of the wave of rate resets expected over the next 12 to 18 months.

According to a Reuters report, the plan would freeze interest rates for up to seven years, though many additional details have yet to be agreed upon by the industry and investors, who will both be expected to absorb the costs. Potential lawsuits from investors are noted as a particular concern, and servicers have asked for support from federal regulators to help manage any legal uproar, the report adds.

Paulson has previously noted that these rate freezes would not be available to certain borrowers, such as those who are able to afford mortgage payments following a reset, according to a Los Angeles Times article, and borrowers who owe more than their homes' current values may be ineligible as well.

A Bloomberg article adds that Paulson's efforts are motivated by concern that the real estate downturn may significantly hurt crucial consumer spending – as well as worry that major losses on securities backed by subprime loans are likely to continue to mount unless action is taken.

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