Democratic candidates weigh in on mortgage crisis

NEW YORK (Reuters) - Democratic presidential candidates seized on the U.S. mortgage crisis on Wednesday, with Hillary Clinton and John Edwards offering competing plans to help millions of people facing steep rate hikes or loss of their homes.

Their calls for voluntary action to resolve the crisis, which threatens the health of the economy and credit markets in the United States and abroad, came a day before President George W. Bush was expected to outline his own proposal to freeze mortgage rates for five years for at risk U.S. homeowners.

The crisis has some analysts predicting recession, and fresh polls say voters are growing increasingly worried about the state of the U.S. economy as they plan to elect the next U.S. president in November 2008.

An estimated 1.8 million U.S. homeowners who took out loans with low teaser rates face pricey loan resets next year alone, the Federal Reserve has said. As many as a half a million borrowers risk losing their homes, officials say.

The rising defaults on U.S. subprime loans have spooked financial markets around the globe, tightening credit conditions and threatening to derail the U.S. economy.

A new USA TODAY/Gallup Poll showed that while the U.S.-led war in Iraq tops voters' concerns, their concern about the economy is growing. A poll by the Los Angeles Times and Bloomberg showed more voters are now pessimistic than optimistic about the economy, and an increasing proportion fear the country is heading into recession in the coming year.

Clinton, the Democratic front-runner nationally, unveiled her plan before financial executives, where she said Wall Street was partly to blame for the subprime mortgage mess and urged the investment community to support her proposals.

"Wall Street helped create the foreclosure crisis, and Wall Street needs to help solve it," she said. She also placed blame on mortgage lenders and brokers who lowered underwriting standards, regulators who failed to provide oversight and on ratings agencies for giving high marks to risky securities.

A FIVE-YEAR FREEZE

The New York senator called for a voluntary freeze of at least five years on the adjustable rates of subprime mortgages, which are extended to borrowers with spotty credit.

She also called for a 90-day moratorium on subprime foreclosures to give financially troubled borrowers time to work with lenders to avoid losing their homes.

If Wall Street does not voluntarily support such efforts, Clinton said she would consider legislation to give legal protection to mortgage servicers and others who work with borrowers to modify their mortgages.

Former North Carolina Sen. Edwards said homeowners facing foreclosure should have the right to lowered rates or restructured loans. He said any rate freeze on adjustable-rate mortgages should last at least seven years.

Under his proposal, lenders would be obligated to help those who have fallen behind on their mortgage payments by converting their mortgages to those with a fixed rate, capitalizing their delinquent payments, lowering their interest rates or forgiving a portion of their loans.

"As president, I will restore the American dream of homeownership by standing up to the corporate interests and their lobbyists and passing strong federal laws to protect working families from predatory mortgages and abusive financial products," Edwards said in his statement.

The proposals to freeze mortgage rates are primarily aimed at borrowers who can afford their existing rates and who are current on their payments but would face default when the rate resets at a higher level.

(Additional reporting by Jeremy Pelofsky in Omaha, Neb.; Patrick Rucker, John Poirier, Andy Sullivan and Emily Kaiser in Washington; editing by Philip Barbara)