President George W. Bush is expected to unveil a plan on Thursday to help struggling American homeowners avoid foreclosure, addressing a mortgage crisis that risks tipping the U.S. economy into recession and has shaken financial markets around the world.

The plan hammered out by the U.S. Treasury Department in talks with mortgage industry leaders would bring relief to many of the 2 million homeowners who took out loans with low teaser interest rates that are due to move sharply higher in the next year or so.

The White House said Bush would speak on the battered U.S. housing market at 1:40 p.m. EST on Thursday. The White House said the president would discuss steps to help homeowners avoid foreclosure.

The plan that industry sources said Bush would outline is designed to temporarily hold rates steady for subprime borrowers who could not afford to stay in their homes otherwise.

As proposed by a mortgage investor trade group, it would offer a five-year rate freeze for subprime loans made from 2005 through the end of July, if they are due to reset over the coming two and a half years, according to a document obtained by Reuters.

During the U.S. housing boom that ended in 2005, many borrowers turned to the easy loan terms and low early payments of subprime loans, which are often extended to borrowers with shaky credit. Those homeowners are suffering now that property prices and sales are falling -- meaning that they would not be able to pay off their loans even if they could sell their homes -- and officials fear 500,000 borrowers could lose their homes as the initial low interest rates reset at much higher levels.

Many of these subprime loans were repackaged as securities and sold to investors around the globe. As defaults have risen, investors have scrambled to assess the plummeting value of their assets and banks have announced more than $50 billion of write-downs of assets tied to mortgages.


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

Democratic president hopeful John Edwards said any rate freeze should last at least seven years. In addition, the former North Carolina senator said lenders should be required to move borrowers at risk of default to fixed-rate loans, lower their interest payment or forgive a portion of their loans.

Sen. Hillary Clinton of New York, another Democratic presidential contender, said on Monday the administration should impose a 90-day moratorium on subprime foreclosures.

In outlining her plan to financial executives on Wednesday, Clinton noted that investors had helped fuel the housing frenzy and called on them to pitch in to help Americans save their homes. Wall Street helped create the foreclosure crisis, and Wall Street needs to help solve it, she said.

Treasury Secretary Henry Paulson has worked closely with the investor trade group -- the American Securitization Forum -- as well as mortgage servicers and lenders to nail down a comprehensive plan to modify troubled loans.

Under the plan put forward by mortgage investors, distressed homeowners would be offered various help depending on their ability to pay.

Borrowers with strong credit would be shepherded to more affordable mortgages, like those offered under the Federal Housing Administration, a program traditionally aimed at low-income Americans.

A second class of borrowers who simply do not have the resources to make their current mortgage payments would get no special relief and would likely lose their homes.

A third group who have shown they are a reasonable credit risk, but who could not afford their homes with higher rates, would qualify for fast-tracked loan modification and a five-year interest rate freeze.

Other existing borrowers who have struggled to keep up their loan payments could still qualify for the freeze, but would face more scrutiny before their loans would be modified.

The backing of mortgage investors is important to the success of any rate freeze plan because it would give some cover to mortgage servicers and others in the industry who could face lawsuits from bondholders if they began to tinker with loans.