Group proposes subprime mortgage framework: document

By John Poirier

WASHINGTON (Reuters) - A trade group that represents large mortgage investors has offered the U.S. Treasury Department a plan to temporarily freeze interest rates for borrowers facing foreclosure, a document obtained by Reuters on Wednesday says.

The outline by the American Securitization Forum focuses on subprime adjustable rate residential mortgages with starter interest rates of three years or less that were originated between January 1, 2005, and July 31, 2007.

For a borrower to qualify for a proposed five-year rate-freeze, rates on those same mortgages would also have to reset from January 1, 2008, through July 31, 2010, the ASF document states. The aid might extend beyond subprime loans to prime and Alt-A loans, the document states.

The proposal also seeks to avoid rewarding borrowers who may have participated in fraud, by targeting borrowers who occupy their homes as primary residences.

It is not known if Treasury Secretary Henry Paulson, who has worked closely with ASF, has accepted the document as presented late Tuesday or if he demanded any changes.

President George Bush is planning an announcement Thursday afternoon on the issue and it will be followed by a news conference by Paulson.

The proposals, outlined in a document called the "ASF Statement of Principles, Recommendations and Guidelines," does not appear to be binding for the industry.

"While this statement addresses certain legal, regulatory and accounting matters, it does not constitute and should not be viewed as providing legal or accounting advice," the document says.

Though it is not known how many borrowers might be eligible for loan modifications, the proposal opens the door for "case by case" assessments for current borrowers who are able to refinance into private loans or loan products insured by the Federal Housing Authority.

A complex formula comparing a current credit history score with a score at origination will also help determine eligibility for borrowers who live in their homes they bought and are current on their payments.

For example, the document says that a subprime borrower with a score of less than 660 and has not increased by 10 percent since the origination of the mortgage will be fast-tracked for a modification.

The document does not mention any system to monitor the modifications, which has been called for by some congressional Democrats.

(Reporting by John Poirier and Patrick Rucker; Editing by Diane Craft)