by Joseph Kenny | 12/12/07

The White House has forged an agreement with the housing industry to freeze interest rates for some subprime mortgages for 5 years.  The pact is an attempt to forestall the coming foreclosure crisis.

The proposed agreement also represents a decisive compromise between those who'd like to see a 7-year freeze and those who believe a rates freeze should last only a couple of years.

Treasury Secretary Henry Paulson says the program is not open for owner-occupied homes.  The eligibility requirements are a safeguard against real estate speculators cashing in on the deal.

Some experts say as many as two million homeowners are in danger of losing their homes because of anticipated readjustments in subprime mortgage rates.  Subprime mortgages are those loans that are extended to individuals with shaky credit histories.   The higher rates could boost monthly home payments by as much as $300.

From January to October of 2007, about 1.8 million foreclosures were recorded.  That's compared to only 1.3 million foreclosures the previous year.

The housing slump is the worst in 16 years.  House prices have been falling, along with home sales.  In addition, tighter loan requirements have made it increasingly difficult for prospective buyers to purchase homes, adding to the crisis.

Experts in the real estate industry do not expect the housing crisis to lessen until the middle of next year.  Consequently, the state of the housing industry could become a major issue in next year's political contests.   It has already become an issue among the Democratic candidates for President.

There have been fears that the housing crisis would lead to an all-out recession.  However, the chairman of the Federal Reserve Board has said that the Fed will do everything possible to keep recession at bay.  The Fed has already cut interest rates twice within a 6-week period.