U.S. Lends Hand on ARMs

Updated from 2:50 p.m. EST

President Bush on Thursday unveiled a government-led plan to help borrowers avoid foreclosure by, among other things, temporarily freezing interest rates on certain subprime adjustable-rate mortgages for five years.

Under the plan, devised by mortgage industry leaders led by Treasury Secretary Henry Paulson, the government will assist struggling homeowners by helping them either refinance their existing loans, moving into loans backed by the Federal Housing Administration, or by freezing adjustable-rate mortgage interest rates for certain borrowers for five years, Bush said during a briefing.

"This will bring relief to homeowners more quickly," Bush said during a press conference. "The steps I've outlined today are a sensible response to a serious problem."

Speaking to criticism that the plan was "bailing out" lenders and borrowers who took risky bets and failed, Bush defended the decision for the government to step in. He said "innovative" mortgage products have helped many Americans buy their own home, but some of those products were used "irresponsibly." Lenders made loans difficult for borrowers to understand, and some people took out mortgages they knew they couldn't pay back.

The president also noted that the problem was compounded by the securitization and sale of the loans throughout the world, which has disrupted financial markets as defaults started popping up.

"We should not bail out lenders, real estate speculators, or those who made the reckless decision to buy a home they knew they could never afford," Bush said. "Yet there are some responsible homeowners who could avoid foreclosure with some assistance."