Subprime Deal Commeth
Henry Paulson, the US Treasury Secretary, is close to agreeing a deal with banks and regulators to freeze interest payments that are due to rise next year for many holders of high-risk sub-prime mortgages, which altogether represent loans of $362 billion (£175 billion).
The agreement, which could be announced as soon as Monday, is intended to boost the economy by reducing defaults on sub-prime mortgages, which are expected to jump again in the next 12 months.
Mr Paulson hopes that a reduction in defaults would help to prop up house prices and the value of related securities, boosting liquidity in the banking system and reducing the severity of the broader credit crunch.
The Treasury, which has yet to finalise details of the deal, is talking with banks such as Citigroup, Countrywide and Wells Fargo, and various regulators and lobbying groups, such as the American Securitisation Forum.
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