Subprime plan aims to avoid disrupting market: OFHEO

NEW YORK (Reuters) - The Treasury Department's plan to aid some subprime mortgage borrowers is aimed at helping as many mortgage holders as possible without disrupting the marketplace, the director of the Office of Federal Housing Enterprise Oversight said on Friday.

"The whole idea in the initiative ... is to make sure as many can be saved as possible without disrupting the market," James Lockhart told Reuters on the sidelines of a conference in New York.

He said officials want to keep lending rates down for a while, giving the marketplace time to recover from its current turmoil.

Treasury Secretary Henry Paulson discussed the plan at a meeting with top banking regulators and industry representatives on Thursday and is expected to announce details of the proposal as early as Wednesday, sources familiar with the meeting told Reuters on Friday.

The mortgage representatives and regulators are focusing in on restructuring "2-28" and "3-27" subprime loans, 30-year mortgages that start with low "teaser" interest rates fixed for up to three years and then reset to much higher rates.

The plan's focus is also likely to be more on a borrower's payment history than their credit, Lockhart added.

"It is really payment history more than credit at this point. If they can't make the teaser rate mortgage payments, this is not going to help," he said.

During the five-year U.S. housing boom that ended in 2005, such adjustable-rate loans were widely available to subprime borrowers with damaged credit. Many of these loans are entering default after they reset to higher rates.

As envisioned, the plan would effectively extend the fixed-rate period for stressed borrowers and so shield them from a payment spike that could push them into foreclosure.

(Reporting by Burton Frierson; editing by Leslie Adler)