WASHINGTON (Bloomberg) — Federal regulators and US lenders are focusing on five years as the duration of an interest-rate freeze on subprime mortgages, said a person familiar with negotiations aimed at fending off a jump in foreclosures.

Such an agreement would satisfy the shortest fix sought by the Federal Deposit Insurance Corp. That period is longer than the minimum, two- to three-year modifications suggested by Fannie Mae, the largest source of finance for American home loans. The Treasury Department's Office of Thrift Supervision advocated between three and five years.

"Fixing the reset period is an important action, and it's good that everyone now seems to be pushing in the same direction," said Michael Barr, a professor at the University of Michigan Law School and a former aide to Robert Rubin, who was President Bill Clinton's Treasury secretary from 1995 to 1999. "Now the question is what additional steps are required to keep people in their homes and avoid foreclosures."

Treasury Secretary Henry Paulson is finalising the accord as the housing recession enters its third year and threatens to undo the economic expansion. President George W. Bush and Paulson may announce the plan tomorrow, said two people familiar with negotiations.

More than 30 percent of borrowers with subprime adjustable rate mortgages are behind on their payments before their loans reset higher and 775,000 homes with $143 billion of mortgage debt will go into foreclosure over the next two years, according to estimates from analysts at Credit Suisse Group.

Officials and company executives spent much of the past week negotiating over how long to extend starter rates on subprime mortgages, which are usually given to people with poor or incomplete credit histories.

Paulson was due to brief House Republicans yesterday on the plan, Representative Adam Putnam of Florida, the chairman of the House Republican Conference, told reporters in Washington on Tuesday.

Putnam said his interest in Paulson's efforts increased since he got calls from Florida officials about a state investment pool for local governments hit by debt downgrades. The state board froze withdrawals November 29 to stem a run on assets. Rising defaults on mortgages have spurred billions of dollars in losses on securities backed by the loans.

"Florida in general increases my thinking that we need to look at the reasons to help mitigate the subprime meltdown," Putnam said.

One challenge will be to craft a deal minimising lawsuits from investors in bonds backed by the mortgages being rewritten, analysts said. The longer that lower rates are extended, the more risk posed to the bonds' values. Democratic Representative Mike Castle of Delaware has proposed legislation offering a "safe harbour from legal liability" to mortgage servicers.

"Within the contracts, there is room for the servicers to work with borrowers to minimise the loss for the investor," said Wayne Abernathy, executive director of financial-institutions policy at the American Bankers Association in Washington and a former Treasury assistant secretary.

About 100,000 subprime loans will jump from their discounted initial rates every month for the next two years, UBS AG estimates. American 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 November 29.

These mortgages usually begin with a rate of seven percent to nine percent and then reset to between 11 percent and 13 percent. "What we are talking about is having these loans modified, so they continue for a longer period of time at the starter rate," John Reich, director of the Office of Thrift Supervision, said in an interview in Washington on Monday.

Treasury spokeswoman Jennifer Zuccarelli declined to comment on specifics of the proposal.

Paulson and Fed Chairman Ben Bernanke are concerned that falling home values will choke consumer spending, which has driven economic growth since the last recession ended in 2001. By heading off further deterioration in the $11.5 trillion mortgage market, officials are also aiming to stem losses on securities backed by subprime loans.

The Bush administration's efforts to forge an agreement have become more urgent as the economy falters after a third-quarter spurt. Growth may cool to an annual rate of less than one percent in October to December, economists say, following an expansion of 4.9 percent in the prior three months.

"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 this week in Washington. While no "silver bullet," rewriting a set of subprime loans would "clearly" ease the risks from the housing slump, he said in an interview.

Sheila Bair, chairman of the FDIC, has been working with Paulson and said she favours extending introductory rates for between five and seven years.

Fannie Mae chief executive officer Daniel Mudd told reporters at the OTS event that a cap of at least two or three years "seems to make sense."

Paulson said in his speech that the government is focused on helping subprime borrowers who can afford the introductory mortgage rate but not the adjusted one. The plan "does not, and will not, include spending taxpayer money on funding or subsidies for industry participants or homeowners," he said.