Having previously ruled out intervention, Secretary to the Treasury, Henry Paulson, said it was in final negotiations with lenders over an agreement which would see home owners, who are faced with a steep hike in rates but who have kept up with their repayments, having their mortgage rate frozen for a period of between two and five years.
Backing this up would be greater tax relief for local government bonds which are currently being used to repay loans which have been defaulted on.
Paulson said: “The government has a role to play but an industry-wide approach is critical to the effectiveness of this effort. However, this is not a silver bullet. This plan is not going to deal with all of the problems associated with the market and bad practices.”
The plans received initial backing from US lenders.
Kerry Killinger, chief executive of Washington Mutual Inc, said: “I’d be supportive of whatever it took for the industry to be on stronger footing.”
However, many believed the plans would face many difficulties, including potential lawsuits from investors who would be losing out on expected revenue.
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