Paulson proposes tax-exempt bonds for mortgage aid

WASHINGTON (AFP) — US Treasury Secretary Henry Paulson proposed Monday to allow local governments to issue tax-exempt bonds to provide funds to help avert a wave of defaults by struggling homeowners.

The proposal, which would require congressional approval, would broaden the ability of cities and other local governments to use proceeds from tax free bonds to help alleviate stress in the mortgage markets.

Paulson, who has been actively working to stave off a crippling wave of home foreclosures from subprime loans, many with adjustable interest rates, to people with weak credit, offered a new proposal that would help states and cities help in refinancing.

He noted that under current law, states and localities may issue tax-exempt bonds only to assist first time homebuyers or homebuyers in designated distressed areas.

"Today, we are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include ...