The Office of Thrift Supervision is refining a policy position on loan modifications that would compensate servicers and allow adjustable-rate subprime borrowers to stay at the initial interest rate for 36 months if they can't afford their payments once the mortgage resets.OTS director John Reich has discussed the proposal with Treasury Department officials and he believes a three-year modification period is consistent with current servicing contracts and could be used by all servicers - not just thrift institutions. Mr. Reich told reporters he is "not comfortable" with proposals that call for converting 2/28 ARMs to 30-year fixed rate mortgages. Under his proposal, borrowers that are current and borrowers that became delinquent because of a reset could be eligible for a loan modification. However, each eligible borrower would have to make their monthly payment for six months before the modification becomes permanent. Servicers would be paid $500 for each loan modification Mr. Reich plans to discuss the loan modification proposal at OTS' housing conference on Dec. 3 at the National Press Club in Washington.

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