U.S. Lends Hand on ARMs

Since the third quarter of 2006, the foreclosure start rates for prime adjustable-rate mortgages increased from 0.30% to 1.02%, while the rate for subprime ARMs more than doubled to 4.72%, the association says.

Bush's plan also comes as IndyMac Bancorp(IMB Quote), the nation's second-largest mortgage independent lender, acknowledged that it would record a loss for the fourth quarter and may further cut its dividend to raise capital.

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.

In a speech Monday to the National Housing Forum, Paulson identified four categories of subprime borrowers: those who can afford their adjustable-rate mortgage; those who cannot afford the lower teaser rate and will likely not be able to keep their homes; those homeowners who might choose to refinance their mortgage; and those with "steady incomes, relatively clean payment histories who could afford the lower introductory mortgage rate but cannot afford the higher adjusted rate."

It is this fourth category that the Treasury is targeting for mortgage interest rate freezes.

"The approach announced today is not a silver bullet," Paulson said in prepared remarks on Thursday. "We face a difficult problem for which there is no perfect solution.