Paulson defends government's subprime intervention

NEW YORK (Reuters) - The government's intervention to streamline the mortgage industry's process for evaluating struggling borrowers was a necessary step, Treasury Secretary Hank Paulson said in the Wall Street Journal on Friday.

"No one should lose their home just because a complex, cumbersome process simply couldn't get to them in time to determine if there is another potential solution," Paulson said in an article published on the Journal's editorial page.

"This framework will not prevent all foreclosures, nor should it. Some borrowers, particularly those who received loans under the most lax underwriting standards and who haven't even been able to make their initial payments, likely will become renters again."

President George W. Bush announced a plan on Thursday that aims to help more than half of the two million homeowners who took out adjustable-rate subprime loans with payments due to move sharply higher soon.

The move, which would offer some of them a five-year mortgage-rate freeze was hammered out with help from Treasury Department officials in an attempt to slow the wave of home loan foreclosures that has threatened to knock the U.S. economy into recession and rattled investors worldwide.

While avoiding a wave of foreclosures would likely bolster an already wobbly economy, ratings firm Standard & Poor's said freezing rates on subprime mortgages may lead to further deterioration in credit ratings on bonds backed by the loans.

Some on Wall Street worried they would be forced to accept mortgages rewritten in the borrowers' favor.

Paulson argued in the Journal that in many cases a loan modification creates better value for investors than the foreclosure process.

(Reporting by Emily Chasan; editing by Tony Austin)