Lenders Agree to Freeze Rates on Some Loans

WASHINGTON, Dec. 5 — The Bush administration reached an agreement with the mortgage industry on Wednesday on a plan to freeze interest rates for up to five years for a portion of the two million homeowners who bought houses in the last few years with subprime loans.

The plan, hammered out after weeks of talks among Treasury Department officials, mortgage lenders and Wall Street firms, would allow distressed borrowers who are current on their payments to keep their low introductory rates and escape an increase of 30 percent or more in their monthly payments when the rates expire.

Democratic lawmakers and presidential contenders quickly criticized the plan as being too timid and promoted more ambitious proposals of their own.

The agreement, to be formally announced Thursday by President Bush, is expected to contain numerous limitations that would exclude many — if not most — subprime borrowers, according to industry executives who have seen it. It would exclude those who are delinquent on their payments — about 22 percent of all subprime borrowers, according to First American LoanPerformance, an industry research firm.

The plan is also expected to exclude any borrower whose introductory rate expires before Jan. 1. About $57 billion in subprime loans are scheduled to be reset at higher rates in the final three months of this year, according to estimates by First American LoanPerformance.

Mortgage companies could also exclude borrowers who they conclude are making enough money to afford higher monthly payments. Barclays Capital — extrapolating from a similar program recently unveiled in California — estimates that only about 12 percent of all subprime borrowers, or 240,000 homeowners, would get relief.

“From what I’ve heard, I don’t see anything that leads me to believe we will see an increase in loan modifications,” said Eric Halperin, Washington director of the Center for Responsible Lending, a nonprofit group that has studied the subprime problem.

The plan is being announced as fallout from the mortgage crisis is seeping into the political sphere. Until recently, few candidates talked about subprime loans, and few bankers and traders on Wall Street paid much attention to mortgage-crisis declarations on the campaign trail. But with the meltdown growing worse, housing prices still plunging and many economists worrying about a recession, President Bush and his Democratic opponents are now racing to come up with answers.

Democratic presidential candidates complained that the White House plan was overly narrow.

“It seems that President Bush is going to give struggling homeowners far less than they need,” Senator Hillary Rodham Clinton of New York said in a statement on Monday. “With news accounts using terms like ‘whittled down’ and ‘limited’ to describe the scope of the Bush plan, it appears that the president is pushing a freeze for a very narrow group of borrowers.”

Mrs. Clinton visited the Nasdaq stock market in New York on Wednesday and assailed Wall Street firms for the mortgage mess. She called for a 90-day moratorium on subprime foreclosures and a rate freeze that would apply to all borrowers current on payments and some who have fallen behind.

Despite the criticism, the Bush plan is a significant change in an initial reluctance to impose solutions. As recently as a month ago, Treasury Secretary Henry M. Paulson Jr. argued that lenders should try to work out new terms on a case-by-case basis.

But Mr. Paulson and federal banking regulators became increasingly impatient with the industry’s failure to produce a systematic, rapid approach to evaluating borrowers.

Sheila C. Bair, chairman of the Federal Deposit Insurance Corporation, proposed a comparatively radical plan to permanently freeze rates on all subprime loans. Mr. Paulson rejected that idea, but began to push for a standardized approach that would temporarily freeze rates for many borrowers facing upward adjustments on their monthly payments.

Administration officials emphasized that the rate freeze was only one part of a broader plan. Mr. Bush will also ask Congress to temporarily expand the authority of states and localities to issue tax-exempt mortgage-revenue bonds to help people refinance their mortgages.

Treasury officials are also pushing the industry to come up with a streamlined way to help subprime borrowers refinance with a more conventional, lower-rate mortgage.

Subprime loans typically come with high interest rates, and were originally intended for people with poor credit histories. But some analysts say that more than a third of all subprime borrowers could have qualified for cheaper conventional loans at the outset.