EXCLUSIVE: Treasury Secretary Paulson 'Optimistic' Mortgage Plan Will Be Finished Soon

Nov. 30, 2007 — -- Treasury Secretary Henry Paulson told ABC News in an exclusive interview that the Bush administration's plan to help troubled subprime borrowers should be finalized soon -- ideally by next week.

"We're moving as fast as we can move," Paulson said in an interview with ABC News' Betsy Stark.

"We believe that the biggest issue is gonna be beginning next year when the number of [mortgage rate] resets is going to be increasing dramatically. And we're doing everything we can to deal with a complex problem and help the industry come together in a way which is going to be good for homeowners, communities and the economy overall."

The treasury secretary and other government officials met with mortgage industry representatives Thursday to work out details of the program.

They are trying to find a way to keep the more than 4 million subprime borrowers who currently have adjustable rate mortgages from falling into default when their monthly payments are increased in the next two years.

Click here for a full transcript of Betsy Stark's exclusive interview with Secretary Paulson.

Studies say that more than 1 million of these high-risk loans will be pushed into foreclosure in the next six years as a result of those higher monthly payments.

"If there was ever a role for government, it's to help facilitate a solution when innovation has outrun the private sector's ability to deal with it," said Paulson. "And there's been a lot of innovation and complexity in the mortgage market, and we need to do everything we can to help get the industry ready to meet the growing number of resets that are going to be coming in the subprime mortgage market."

Paulson said the plan will not be a government-run bailout of subprime borrowers, and the banks that loaned them money. Instead, Paulson said, the government is just providing an industry-sponsored solution to borrowers who can afford to own a home but would have trouble making their mortgage payments after a reset.

"This is not a government subsidy that we're talking about here," said Paulson. "This is something that the industry will do where it makes sense."

The plan would establish guidelines for lenders to freeze payments for homeowners who qualify for the program. Paulson said the program would be completely voluntary, and only some borrowers would qualify.

He said homeowners who can handle an increase in payments and those who don't "have the financial capability to own a home" will not be offered an interest-rate "freeze."

"We're focused on those in the center -- the middle group -- that are going to have a problem meeting their payment, but it's in the industry's interest to come up with a solution to help them stay in their homes."

Critics said this sort of selective moratorium on mortgage resets for some borrowers encourages bad economic behavior. If borrowers are not forced to deal with the consequences of taking out a home loan that they cannot afford after a reset, they might expect future loans to be altered in their favor.

Paulson said the consequences of letting these loans fall into foreclosure are bigger than the individual homeowners.

"My concern is keeping people in their homes when they've got the capability to own a home," said Paulson, "And that is not only in the family's best interest, it's in the neighborhood's best interest, the community's best interest and the country's best interest."