Dec. 3 (Bloomberg) -- Treasury Secretary Henry Paulson said the government and banks will ``soon'' announce a plan to minimize subprime mortgage foreclosures, lessening the risks posed to an economic expansion entering its seventh year.

``The number of subprime mortgage resets is going to increase dramatically next year, and we need to make sure the capacity is there to handle it,'' Paulson said in a speech at a housing conference in Washington. While no ``silver bullet,'' a deal to rewrite a set of subprime loans would ``clearly'' ease the risks from the housing slump, he said in an interview later.

Paulson is seeking agreement among banks, mortgage servicers and securities-industry lobbyists to fix some subprime mortgage rates before they reset higher. The Treasury chief today proposed letting state and local governments ``temporarily'' exempt taxes on bonds issued to help refinance subprime borrowers.

Borrowers ``with steady incomes and relatively clean payment histories'' will be the focus of the mortgage restructuring deal, Paulson said in his speech at an Office of Thrift Supervision conference. ``Treasury is aggressively pursuing a comprehensive plan to help as many able homeowners as possible keep their homes.''

Housing and Urban Development Secretary Alphonso Jackson said in a separate interview that the Bush administration expects to make an announcement Dec. 6.

Length of Freeze

Paulson didn't comment on how long of a freeze on mortgage rates he prefers. OTS Director John Reich said he supports a three- to five-year freeze on rates for mortgage borrowers at risk of foreclosure. Sheila Bair, chairman of the Federal Deposit Insurance Corp., favors extending introductory rates for between five and six years.

In the speech, Paulson identified four categories of subprime borrowers: those who can afford to pay adjustable-rate loans; those who don't have ``the financial wherewithal to sustain home ownership;'' those who choose to refinance their mortgage --which he called ``the first, best option'' -- and those who can afford the introductory rate but not the adjusted one. It is the last category that the government is committed to helping, he said.

``We are focusing on this group, determining who they are and what steps may appropriately assist them,'' Paulson said. The plan, ``does not, and will not, including spending taxpayer money on funding or subsidies for industry participants or homeowners.''

The Treasury chief reiterated his view that while the housing recession and reduced access to credit will impose a ``penalty'' on U.S. growth, the economy ``remains fundamentally sound.'' He cited stable inflation, continued job gains, ``healthy'' company balance sheets and rising exports.

`Strong Dollar'

Paulson also reiterated his support for a ``strong dollar'' and said that while the U.S. economy, like any other, goes through ``ups and downs,'' its ``fundamental strengths'' will be reflected in foreign exchange markets.

Subprime loans, given to people with poor or incomplete credit histories, typically offer a low introductory rate for the first two or three years. The rate then resets for the duration of the mortgage, usually 30 years. About 100,000 such loans will reset each month over the next two years, according to research by UBS AG.

U.S. home foreclosures almost doubled in October from a year earlier as subprime borrowers failed to make higher payments on adjustable-rate mortgages, Irvine, California-based RealtyTrac Inc. said on Nov. 29.

SIV Assets

Moody's Investors Service is preparing the biggest credit rating cuts since subprime mortgages contaminated the bond market. The ratings agency said on Nov. 30 it may lower ratings on $105 billion of debt sold by structured investment vehicles after the net asset values of 20 SIVs sponsored by firms including Citigroup Inc. declined to 55 percent from 71 percent a month ago. The assets were valued at 102 percent in June.

Paulson also reiterated his call for the Senate to pass legislation to help the Federal Housing Administration guarantee loans for delinquent borrowers. ``The administration is taking action to help homeowners, and Congress must do the same before it leaves for the year,'' he said.

To contact the reporter on this story: John Brinsley in Washington at jbrinsley@bloomberg.net

Last Updated: December 3, 2007 11:26 EST