US May Subsidize Lenders Who Cut Mortgage Rates

Details are emerging on the Obama administration's plan to help homeowners: One idea is to give strapped borrowers a lower interest rate, then have the federal government chip in to defray the lenders' loss, the Washington Post reports. The Treasury Department is expected to outline its overall plan in the next week or so. Another proposal gaining favor is giving bankruptcy judges the power to change the terms of mortgages.

The idea of lowering interest rates, then giving lenders a subsidy "has the advantage of being fairly simple," said a housing industry consultant. "You don't need a large federal bureaucracy to do it, (and) it is far cheaper to reduce mortgage payments than it is it to acquire a distressed property or even guarantee the loss on that property." Two problems: figuring out who qualifies and coming to grips with the notion that not all mortgages should be saved.