US, firms in talks over subprime loans

WASHINGTON -- Federal banking regulators are negotiating with lenders to restructure high-interest-rate mortgages given to home buyers with poor credit.

The effort by the Office of Thrift Supervision is aimed at softening the effect of the housing market's slowdown and bolsters the argument of lawmakers who say mortgage reforms may not be needed.

While it may also result in accounting charges on quarterly earnings reports of public companies with mortgage lending units later this year, it could limit the economic fallout from the overaggressive mortgage practices of the past few years.

Experts say it could also save lenders money in the long run because it costs less to refinance a loan than to foreclose on a house that might not easily sell.

An OTS spokesman says the agency's talks with lenders are part of its normal regulatory oversight, but they come as home prices and home sales are down sharply compared with last year and foreclosures are surging.

Sales of existing homes in the first quarter were running 6.6 percent lower than a year ago, the National Association of Realtors said yesterday. And research firm RealtyTrac Inc. said mortgage lenders foreclosed on 62 percent more U S homes in April than a year ago.

There are signs that lenders are taking action on their own to avert a housing market crisis. Seattle-based Washington Mutual Inc. said last month it would refinance up to $2 billion in subprime mortgages to help borrowers avoid default and foreclosure.