'Government giveaway'

Officials fear 500,000 Americans are at risk of losing their homes, with $367bn worth of adjustable-rate subprime mortgages set to reset to higher interest rates in 2008 and 2009.

Under the plan, homeowners who have shown they are a reasonable credit risk, but who could not afford their homes with higher mortgage rates, would qualify for "fast-track" loan modification and the five-year interest rate freeze.

Borrowers who can afford the current loan terms would get help refinancing, but those who cannot and were poor credit risks would probably still lose their homes.

Peter Schiff, president of Euro Pacific Capital Inc, called the deal a "huge government giveaway" that would in essence reward people for doing the wrong thing.

He said: "They are basically saying we are going to help you if you can't make the higher payments. That means everybody who can make the higher payments is going to try to do what they can to demonstrate that they can't make those payments."

Democrats welcomed the Bush administration's effort, but said more needs to be done.

Harry Reid, senate majority leader, said: "We know the efforts are not one that will cover everything, but it's a step in the right direction."

Tax reform

Bush also urged congress to pass legislation to reform the tax code to help homeowners refinance their mortgages.
   
The US mortgage bankers association said foreclosures reached a record high in the third quarter, while late payments on mortgages have hit their highest level since 1986.

Bush said an estimated 1.2 million homeowners could be eligible for help over the next couple of years.

However, private-sector analysts said the numbers would likely to be much lower.

Mark Zandi, a chief economist at Moody's, said: "In theory, the plan could help as many as 750,000 subprime homeowners. In practice, my sense is that it will probably help at best about 250,000 homeowners."

The rate freeze is aimed at owner-occupied homes, not those bought by speculators hoping to profit when the housing market was booming.