State and local governments should be permitted to issue tax-exempt bonds that would fund programs to prevent foreclosures, Treasury Secretary Henry Paulson said on Monday.

Today, we are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinancing, Paulson told a housing conference sponsored by the Office of Thrift Supervision. If enacted, this would reduce the cost of innovative mortgage programs.

Last week, Paulson met with U.S. lending regulators and executives from several sectors of the mortgage industry to develop a plan to help subprime borrowers who could lose their home when their mortgage rate increases.

We are determined to bring this diverse group together, to develop a set of standards that will be implemented across the industry, from the largest mortgage servicers to the smaller specialty servicers, Paulson told the National Housing Forum meeting held at the National Press Club in Washington. An industry-wide approach is critical to the effectiveness of this effort.

Paulson has said that he is close to brokering a comprehensive mortgage aid plan that will shepherd many troubled borrowers into safe and sustainable loans.

We are leading the industry to develop a systematic means of efficiently moving able homeowners into sustainable mortgages, he said Monday..

(Reporting by Patrick Rucker; Editing by Walker Simon)