MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

The government is looking for a way to help some of the people who are threatened by the subprime mortgage crisis. The Treasury Department is working a number of lenders to do that. One idea is to freeze certain adjustable mortgage rates to help borrowers avoid foreclosure.

NPR's Jim Zarroli is following the story and he joins us now. And Jim, what can you tell us about this plan?

JIM ZARROLI: Well, Robert, one of the looming problems right now in this whole mortgage mess is what to do about all the adjustable rate mortgages that are about to come due. These are the mortgages, as you know, that have one interest rate for two or five or seven years, then after that the rate goes up. A lot of the people who have these - have trouble making the payments once they reset, some of them going to foreclosures, so the government wants these lenders to try to freeze these rates for at least awhile.

SIEGEL: Well, who would be eligible to have a frozen rate and for how long would the rates stay frozen?

ZARROLI: Well, all those details have to be worked out. I did talk to some people who have - are familiar with the talks. They say there are some people who always have trouble paying their mortgage. Even before the mortgage is reset, they had trouble paying them. This plan is not for them. They are considered beyond help. This is for the people who are okay when they had the lower teaser rate. They're able to pay their bills. But once the rates reset, they had trouble or expect to have trouble. The idea is if you keep them at that initial rate for a while longer, you give them more time to work things out, you know, maybe they can get on track financially.

SIEGEL: So people who are not in arrears seem to be the likely beneficiaries of this. What do the lenders think about that? I mean, somebody who might be paying 11 percent for the next few months might be backed down to 8 percent. The lenders are out some money. Are they willing to do that?

ZARROLI: Well, this would be voluntarily, so the banks don't have to go along with it. The government thinks they will for several reasons. For one thing, you know, this problem is getting so huge there are two and a half million outstanding mortgages that adjust after two or three years. Most of them will reset in the next year. A lot of people won't be able to pay what they owe. We're going to have a huge wave of foreclosures just bearing down on us. I think the banks think, you know, anything that could mitigate that would be worth trying at this point.

SIEGEL: Well then, why did they need the Treasury secretary to get them to do it? Why don't - if it really is good business, why aren't they just offering lower rates to people?

ZARROLI: Well, some of them already do try to modify their loans. They don't like to do it. It's expensive. It's time consuming. You know, they think it just kind of delays the inevitable. But they also don't like to foreclose and the government is saying, you know, we have big computers now, we can do this on a much bigger scale. We can reach out to borrowers before they fall behind and modify their loans. We can be proactive. And if we don't, the problem is just going to overwhelm us.

SIEGEL: Now Jim, as you said, a lot of the adjustable rate mortgages are supposed to reset pretty soon. We're at a time when many mortgages have been and will continue to reset. How do the negotiators - the people working on this deal - how do they see their time, the timeframe that they're working in?

ZARROLI: Well, the Treasury Secretary Henry Paulson wants this done by the end of the year. There are a lot of knots to unravel. Perhaps the biggest one is what to do about investors. These mortgages were repackaged and secured as highs. They're sold to investors. The banks don't even hold the debt anymore in most cases. So if you freeze the mortgage rates, do the investors lose out? You know, what if they don't like it? Are they going to turn around and sue the banks?

SIEGEL: Mm-hmm. Big question. Thank you, Jim.

ZARROLI: You're welcome.

SIEGEL: That's NPR's Jim Zarroli in New York.

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