News & Analysis This Month/Supplement - Deal Reached on Freezing Rates on Some Mortgages

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WASHINGTON, Dec. 5 — The Bush administration reached an agreement with the mortgage industry today on a plan to freeze interest rates for up to five years for a portion of the two million homeowners who bought houses in the last few years with subprime loans.

The plan, hammered out after weeks of talks among Treasury officials, mortgage lenders and Wall Street firms, would allow distressed borrowers who are current on their payments to keep their low introductory rates and escape a jump of 30 percent or more in their monthly payments when those rates expire.

Democratic lawmakers and presidential contenders quickly criticized the plan for being too timid and promoted more ambitious proposals of their own.

The agreement, to be formally announced on Thursday by President Bush, is expected to include numerous limitations that would exclude many — if not most — subprime borrowers, according to industry executives who have seen it. It would exclude those who are delinquent on their payments — about 22 percent of all subprime borrowers, according to First American Loan Performance, an industry research firm.

The plan is also expected to exclude any borrower whose introductory rate expires before Jan. 1. About $57 billion in subprime loans are scheduled to be “re-set” at higher rates in the final three months of this year, , according to estimates by Loan Performance, an industry research firm. .

Mortgage companies could also exclude borrowers whom they conclude are making enough money to afford higher monthly payments. Barclays Capital — extrapolating from a similar program recently unveiled in California — estimates that only about 12 percent of all subprime borrowers, or 240,000 homeowners, would get relief.

“From what I’ve heard, I don’t see anything that leads me to believe we will see an increase in loan modifications,” said Eric Halperin, Washington director of the Center for Responsible Lending, a nonprofit group that has studied the subprime problem extensively.

The plan is being announced as fallout from the mortgage crisis is seeping into the political sphere. Until recently, few candidates talked about subprime loans, and few bankers and traders on Wall Street paid much attention to declarations on the campaign trail.

But with the mortgage meltdown getting worse, housing prices still plunging and many economists worrying about a recession, President Bush and his Democratic opponents are now racing to come up with answers.

Democratic candidates complained today that the White House plan was overly narrow. “It seems that President Bush is going to give struggling homeowners far less than they need,” Senator Hillary Rodham Clinton said in a statement. “With news accounts using terms like ‘whittled down’ and ‘limited’ to describe the scope of the Bush plan, it appears that the president is pushing a freeze for a very narrow group of borrowers.”

Mrs. Clinton visited the Nasdaq stock market in New York today and assailed Wall Street firms for their role in the mortgage mess. She called for a 90-day moratorium on all subprime foreclosures and a rate freeze that would automatically apply to all borrowers who are still current on their payments and some who have fallen behind.

Despite the criticism from Democrats, the plan represents a significant change in the administration’s initial reluctance to impose solutions on the industry. As recently as a month ago, Treasury Secretary Henry M. Paulson was opposed to blanket solutions and argued that lenders should try to work out new loan terms on a case-by-case basis.

But Mr. Paulson and federal banking regulators became increasingly impatient with the industry’s inability to produce a systematic and streamlined approach to evaluating borrowers rapidly.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, proposed a comparatively radical plan to permanently freeze the rates on all subprime loans. Mr. Paulson rejected that idea, but gradually began to push for a standardized approach that would temporarily freeze rates for many borrowers facing upward adjustments on their monthly payments.

Administration officials emphasized that the rate freeze was only one part of a broader plan. Mr. Bush will also ask Congress to temporarily expand the authority of states and localities to issue tax-exempt mortgage revenue bonds that can be used to help people refinance their mortgages.

Treasury officials have also been pushing the mortgage industry to come up with a streamlined approach for helping subprime borrowers refinance with a more conventional mortgage that offers a lower rate.

Subprime loans typically come with high interest rates , often as high as 10 percent a year, and were originally intended for people with poor credit histories. But some analysts have estimated that more than a third of all subprime borrowers could have qualified for cheaper conventional loans at the outset.

But there were no hints today that Mr. Bush’s plan will include new commitments by mortgage lenders to help people refinance into cheaper loans. Absent any new approaches, borrowers would still be largely on their own to find better deals.

Republican presidential candidates have been very reluctant to propose government rescue plans, seeing them as a bailout for people who made bad decisions. But they are feeling the heat, and some are joining Mr. Paulson’s effort to come up with a streamlined approach for people in danger of losing their homes.

“You don’t want to reward speculators,” said Senator John McCain of Arizona, who is running for the Republican nomination. “You’d like to take each individual case on its own, but there’s no time to do that. What’s important is to stop the bleeding.”

John Edwards, the former senator from North Carolina, proposed a seven-year freeze in subprime interest rates today, as well as a new fund to help distressed borrowers. Mr. Edwards also called for a change in bankruptcy laws that would give homeowners far more bargaining power in negotiating new terms with their lenders.

Senator Barack Obama of Illinois jumped ahead of many other Democratic candidates in September, offering a detailed set of recommendations that included a government rescue fund, changes in the bankruptcy law and a new tax credit on mortgage interest for people who do not itemize their taxes and cannot currently deduct their interest payments from taxable income.

Adding to the political pressure, many of the states that are hardest hit by mortgage defaults and falling home prices are also important swing states like Florida, Ohio, Michigan and Pennsylvania.

The first two primary states, Iowa and New Hampshire, have not been particularly hard hit by the housing bust. But two of the states with nominating contests that follow immediately afterward — Florida and Nevada — have among the worst problems in the country.

“Even though foreign policy has been dominating the election for the past year, economics will pay a bigger role next year,” said Howard Glaser, a mortgage industry consultant who worked in the Clinton administration and is informally advising Mrs. Clinton’s campaign. “Not only will the specific mortgage and housing problems intensify, the ripple effects on the economy will also magnify.”