Boston Fed, Banks in $125 Mln Subprime Aid Plan

By Scott Malone

BOSTON (Reuters) - The Boston Federal Reserve Bank and five U.S. banks unveiled details on Thursday of a $125 million program to help New England homeowners refinance into fixed-interest-rate home loans if they are facing increases in monthly mortgage payments that they cannot afford.

"The recent rise in delinquencies and foreclosures has been widely reported, and it's very possible that this problem is going to worsen," Boston Federal Reserve Bank President Eric Rosengren said at a press conference here.

He said the Mortgage Relief Fund "should make it easier for some homeowners who are paying high rates and those who face a reset of an adjustable rate mortgage to refinance."

The five banks are Citizens Financial Group, a unit of Royal Bank of Scotland Group Plc (RBS.L: Quote, Profile, Research, Stock Buzz); Sovereign Bancorp Inc (SOV.N: Quote, Profile, Research, Stock Buzz); TD Banknorth, a unit of Canada's Toronto-Dominion Bank (TD.TO: Quote, Profile, Research, Stock Buzz); Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), and Webster Financial Corp (WBS.N: Quote, Profile, Research, Stock Buzz).

Loose lending standards, rising interest rates in 2005 and 2006, and falling house prices have resulted in increasing numbers of less credit-worthy U.S. borrowers defaulting on their so-called subprime home mortgages in 2007.

Interest rates on many subprime mortgages are due to rise in 2008, leaving more borrowers facing the possibility of default in a housing market so soft they may not be able to sell their homes for enough to pay off existing mortgages.

The New England program aims to allow homeowners with adjustable-rate mortgages to refinance into fixed-rate mortgages with lower interest rates. To be eligible, borrowers's homes must be worth more than the balance of their loans, they must live in them and they must have generally made payments on time.

Rosengren said Boston Federal Reserve research had shown that many subprime borrowers had credit scores and levels of home equity that would allow them to qualify for traditional mortgages.