Rate-Freeze Talk Lifts Lenders

Shares of the big mortgage lenders surged on Friday on news that regulators and industry executives were meeting to flesh out a plan to temporarily freeze interest rate resets on certain subprime adjustable-rate mortgage loans.

Regulators and executives from Citigroup(C), Wells Fargo(WFC), Washington Mutual(WM) and Countrywide Financial(CFC), among others, were close to agreeing on a plan that would extend the teaser rates on subprime mortgages that promoted low interest rates for the first two to three years, but then reset to much higher fixed rates for the majority of the life of the loan, The Wall Street Journal reported.

The plan could be announced as early as next week, the Journal said.

Shares of Countrywide surged as much as 29%, while Wells Fargo rose 11% and Washington Mutual soared around 17% on Friday morning.

Subprime mortgage borrowers -- those who have shaky credit histories or obtained a loan with little or no documentation -- began having problems this year as home prices began falling and the availability of credit tightened.

Borrowers have been increasingly defaulting on their mortgage payments this year, as the resets begin, because the higher rates typically increase mortgage payments by several hundred dollars a month, leaving many borrowers overextended. Foreclosures have also been rising as borrowers are unable to refinance the loans to lower interest rates.