U.S. Lends Hand on ARMs

"Today's announcement is a significant step," he said. "As events unfold, our approach will continue to adapt and evolve."

The Treasury is also proposing a plan to allow state and local governments to "temporarily broaden their tax-exempt bond programs to include mortgage refinancings," Paulson said on Monday.

Bush pledged the Justice Department would pursue wrongdoing in the housing and mortgage industries and urged Congress to act on measures he said could aid homeowners, including modernizing the FHA, temporarily changing the tax code to make it more appealing to refinance during a time of falling home values and passing funding for mortgage counseling.

Bush also called on the Senate to pass legislation reforming oversight of government-sponsored entities Fannie Mae(FHM - Cramer's Take - Stockpickr) and Freddie Mac(FRE - Cramer's Take - Stockpickr).

Major mortgage lenders such as Countrywide Financial(CFC - Cramer's Take - Stockpickr), Citigroup(C - Cramer's Take - Stockpickr) and Washington Mutual(WM - Cramer's Take - Stockpickr) rallied on Thursday. Countrywide shares, in particular were gaining nearly 20%.

Randy Diamond, an equity trader at Miller Tabak, says the rise in stocks is a "reflex bounce."

"There is a plan in place -- good or bad -- by the government to help correct the subprime mortgage lending mess," he said in an email. "Banks/lenders would be first to benefit from said plan, coupled with expected help by the Fed, and you have a happy stock market."