Treasury officials and mortgage servicers agree on the need to expedite loan modifications for certain subprime borrowers but have yet to reach a consensus on the specifics of a plan that could lead to a massive restructuring of ARMs that will reset in 2008 and 2009.As one veteran mortgage banker put it: "Who's going to pay for this plan?" The plan centers on identifying borrowers who cannot afford a reset and freezing the interest rate for at least three (and maybe five) years to prevent a default. Several servicers are already allowing borrowers to remain at the starter rate for five years. Treasury Secretary Henry Paulson wants a commitment from large servicers to take an aggressive approach and expedite such loan modifications. However, there are concerns about litigation risk and restrictions in servicing contracts, as well as the losses that lenders, investors, and servicers might take. At a Washington forum scheduled for Dec. 3, Secretary Paulson is expected to discuss the status of the loan modification talks he has held with servicers, including Bank of America, Countrywide Home Loans, Washington Mutual, and Wells Fargo.

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