Nov. 29 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson is trying to forge an agreement with lenders to stem a surge in foreclosures by giving troubled borrowers more affordable loans, according to people familiar with a meeting he led today.

Paulson, who addresses a housing conference on Dec. 3, presided over a one-hour gathering at the Treasury Department in Washington with federal regulators, bankers and lobbyists. Executives of Citigroup Inc., Wells Fargo & Co. and Washington Mutual Inc. attended, said a person present, who spoke on condition they not be identified.

The Bush administration cut its growth forecast today, reflecting a deepening housing recession that's roiled financial markets since August. The Commerce Department reported today that the median price of a new house fell 13 percent in October from a year ago, while fewer homes were sold than economists anticipated.

``One of the roles of Treasury is to say `come on, let's get together and see what we can do,''' said Wayne Abernathy, executive director of financial-institutions policy at the American Bankers Association in Washington and a former Treasury assistant secretary. ``You're likely to come up with something that will work both in the marketplace and honor the sanctity of the contracts involved.''

SIV Approach

Abernathy said Paulson is probably trying the same approach he took with Citigroup, JPMorgan Chase & Co. and Bank of America Corp. in September to address structured investment vehicles, units set up by banks to finance purchases of assets such as corporate bonds and mortgage securities. Treasury encouraged the banks to set up a fund that will buy assets from the SIVs, without committing any government money.

Abernathy, who was responsible for financial institutions at Treasury in President George W. Bush's first term, didn't attend the gathering today.

Paulson was joined today by Federal Deposit Insurance Corp. Chairman Sheila Bair, Comptroller of the Currency John Dugan and Office of Thrift Supervision Director John Reich. Also represented at Treasury was the American Securitization Forum, which lobbies for investors, traders, underwriters, accounting firms, ratings companies and other institutions involved in the creation and sale of mortgage-backed securities.

``We support loan modifications in appropriate circumstances and are working to establish systematic procedures to facilitate their delivery,'' Katrina Cavalli, a spokeswoman for the Forum in New York, said in a statement.

Jennifer Zuccarelli, a Treasury spokeswoman in Washington, declined to discuss the meeting in detail. ``We are encouraged progress is being made,'' she said.

Rising Delinquencies

Delinquencies on subprime mortgages, which account for less than 15 percent of the $11.5 trillion U.S. home mortgage market, climbed after what Fed officials have labeled ``lax'' lending standards spread the past two years. Homeowners were behind on 17 percent of adjustable-rate subprime loans in June, compared with 4.2 percent for prime mortgages of the same type, Mortgage Bankers Association data show.

Rising defaults ``will take the housing market down another level,'' said Mark Zandi, chief economist at Moody's Economy.com, who will attend the conference featuring Paulson next week. ``In the context of an economy that is not in recession, but pretty close, we will be in a recession right in the teeth of a presidential election.''

The rout will get worse because defaults on home loans are likely to rise, analysts said. The FDIC estimates that 1.54 million nonprime mortgages valued at $331 billion will reset by the end of next year.

Seeking Data

Regulators still lack reliable estimates on the extent of the subprime mortgage crisis.

Three months after they asked banks to modify loans for borrowers at risk of default, agencies have little comprehensive data on what lenders and loan servicers have done, officials say.

``We need more granularity about what kind of modifications are being done,'' Sheila Bair, chairman of the FDIC, said in an interview in Washington earlier this month. ``There needs to be agreement and commitment to modify the loans, and there needs to be a transparent process whereby we can monitor the agreement.''

The Treasury has urged the Mortgage Bankers Association to gather precise data on loan modifications.

``There is obviously a need to have more comprehensive data out there on what servicers are doing for borrowers,'' said John Mechem, an MBA spokesman in Washington.

Bair Stance

Bair has offered a specific initiative: Borrowers with adjustable-rate subprime mortgages living in their homes and unable to afford resets should be given extensions on the starter rate for at least five years or offered 30-year fixed-rate loans. Because introductory rates are as much as 2 percentage points above 30-year prime rates, they are still ``an above-market rate of return,'' she said.

Mortgage-industry lobbyists have argued an across-the-board solution is difficult to apply. Rewriting contracts also risks moral hazard -- encouraging borrowers to take on more debt in the expectation of being bailed out if needed later.

``It is really an indiscriminate procedure that would violate the terms of the contract that provide for loan-by-loan decision making,'' George Miller, executive director of the American Securitization Forum, said in an interview earlier this month. A broad approach would ``significantly disrupt the reasonable expectation of investors'' in the $7.1 trillion market for bonds backed by mortgages.

To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net

Last Updated: November 29, 2007 21:06 EST