Bush Mortgage Freeze Could Expand to Prime Loans

It seems like Treasury Secretary Henry Paulson has been spending the new year defending his boss’ “Hope Now” plan to ease the pain of foreclosure and to give the U.S. economy the boost it needs to sustain itself.

So far this week Paulson made a speech in New York on Monday defending the president’s Hope Now alliance which has been together a mere three months. In the process the secretary justified the need for the industry coalition, while calling on Congress to expedite legislation to reform the Federal Housing Administration loan program.

Then, appearing on CNBC Tuesday, the secretary revealed that the Bush Administration is exploring the possibility of expanding the scope of the Hope Now program beyond freezing adjustable rate mortgages for five years for only subprime borrowers to include borrowers with loans at prime rates, according to a report by the Associated Press.

“The housing downturn is the biggest risk to the economy,” Paulson said during an interview on the CNBC show Squawk Box. “We have some programs I think will be relatively effective. There’s no silver bullet. Nothing we can do to let us avoid the problem that is implicit in this. We had a number of years of unsustainable growth in housing prices.”

According to CNN Money, during his speech on Monday Paulson explained the administration’s goals in reforming the FHA program to include lowering down-payment requirements and increasing the cap on loans qualifying to be FHA insured.

The Administration is also calling on Congress to pass legislation to take greater oversight over Fannie Mae and Freddie Mac, the two corporations that purchase mortgages on the secondary market. The legislation seeks to increase the conforming loan maximum for Fannie and Freddie to make it easier and less costly for borrowers in higher-priced parts of the country to get new mortgages or refinance their existing mortgages.

The current federal maximum on “conforming loans” for Fannie and Freddie is $417,000.