Bush mortgage plan to ease squeeze on US homeowners

Dec 5, 2007, 21:18 GMT

Washington - A Bush administration plan to help financially stretched US homeowners keep their homes calls for freezing interest rates on subprime mortgages for five years, news reports said Wednesday.

President George W Bush was expected to unveil the plan Thursday as the US housing market slump enters a third year, slowing economic growth in the buildup to the November 2008 presidential election.

Rising mortgage defaults have rocked financial markets, caused billion of dollars in losses on securities backed by the home loans and pushed the crisis high onto the politcal agenda.

The plan proposes freezing interest rates on some subprime loans for five years and would widen the options for state and local governments to fund the refinancing of troubled mortgages, the Wall Street Journal reported.

Subprime loans, promoted by financial companies as a way for people with weak credit to buy homes, start out with low interest rates that rise after the first few years - the reason many homeowners are now struggling.

The Bush administration has negotiated with mortgage lenders and investors over ways to reverse the rise in home foreclosures, while avoiding a government bailout of investors who lost money in the crisis.

More than 30 per cent of subprime mortgage holders are behind on their payments, and Credit Suisse analysts say 775,000 homes with more than 143 billion dollars of mortgage debt will go into foreclosure in the next two years, Bloomberg News reported.

Nearly twice as many US homes were foreclosed in October compared to a year earlier.