A Buffer? Or a Bailout?

Bush, who is generally skeptical of government intervention, yesterday championed the agreement that his administration orchestrated between major mortgage companies and representatives of the many investors who bought securities tied to subprime loans. The agreement to freeze interest rates on many of those loans is voluntary and was reached after jawboning by top government officials. It requires no congressional approval or public funds, except for $170 million for credit counseling.

Frank and fellow Financial Services Committee member Rep. Judy Biggert (R-Ill.) also criticized the Senate for inaction on House-passed bills that would address the housing crisis.

"The increasing inability of the United States Senate to function is becoming a threat to governance," Frank said.

Bush joined the attack, saying the Senate has stalled key housing initiatives such as reform of the Federal Housing Administration and of government-sponsored mortgage backers Fannie Mae and Freddie Mac.

"Last year, the House passed the bill with more than 400 votes, and this year the House passed it again," Bush said. "Yet the Senate has not acted."

Sen. Charles E. Schumer (D-N.Y.) shot back, blaming the holdup on Senate Republicans.

"The President says that Congress should pass comprehensive FHA reform. Why would a Republican senator object to voting on legislation that the president deems critical?" Schumer said. "The president says that he'd like comprehensive reform of Fannie Mae and Freddie Mac. Why doesn't he jawbone Republican senators who are standing in the way of that measure?"

The mortgage mess began when defaults started soaring among homeowners with subprime loans, which jump after two or three years of an introductory rate. Most of those loans started around 7 percent and would reach 10 percent or more when they reset. A 3 percent rate leap would raise a monthly payment by 32 percent.

Treasury Secretary Henry M. Paulson Jr. warned that the administration's plan is not a "silver bullet" for the nation's deepening housing crisis. And he acknowledged that more will have to be done.

Under the plan, borrowers at risk of losing their homes must discuss their options with their mortgage servicers. These firms include giants that manage about 80 percent of affected mortgages, such as Wells Fargo and Countrywide Financial.

The servicers will attempt to determine which people who have kept up with their payments are likely to be able to refinance their mortgage, perhaps into federally insured FHA loans. That will include those with at least 3 percent equity in their homes.

Homeowners who appear unable to refinance their loans would be eligible for the fast track to freeze their interest rates for five years. To qualify, they must have a credit rating less than 660, they must occupy their home, and the reset must increase what they owe by at least 10 percent. Those with credit scores higher than 660 could still qualify but must prove that they don't make enough money to absorb a mortgage rate increase.

The plan's architects said they decided to use credit scores so loan modifications for a troubled borrower could be executed within a couple of weeks. If they relied on income, mortgage services would face a more complex and onerous process to obtain and verify information.

That could create some perverse incentives for homeowners whose mortgages are about to reset, however. For example, a person could keep paying his mortgage but stop paying other bills, driving his credit rating down -- and thus be eligible for an automatic five-year delay in his mortgage resetting higher.

"I don't think that the percentage that games the system is a significant percentage," said Michael J. Heid, co-president of Wells Fargo Home Mortgage, at a briefing for reporters at the Treasury Department yesterday.

Staff Writer Dina ElBoghdady contributed to this article.