Henry Paulson, the US Treasury Secretary, is trying to use his last month in office to force through a bailout for struggling mortgage borrowers.

The Treasury Department is currently drawing up plans to help homeowners by using Fannie Mae and Freddie Mac to bring down mortgage rates to 4.5 per cent. Such a reduction would represent a 1 per cent decrease in current 30-year fixed mortgage rates and would slice the sum mortgage borrowers repay each month.

Mr Paulson, the former chief executive of Goldman Sachs, is considering whether to use federal money to buy bonds which were sold off the back of Fannie Mae and Freddie Mac’s guaranteed mortgages.

Washington is under pressure to help homeowners who are struggling to pay their mortgages. Apart from the social implications of allowing mortgage borrowers to lose their homes, a failure to stem the surge in foreclosure rates threatens the US economy as a whole. The collapse of the residential real-estate market three years ago has been widely seen as the trigger for the credit crisis on Wall Street and the subsequent recession that is engulfing America.

Rising foreclosure rates threaten to swamp the US real-estate market with new properties at distressed prices, stalling any recovery of home values. In addition, increasing mortgage defaults would also trigger a rise in the amount of debt that America’s lenders would have to write down.

Mr Paulson’s bailout is just one of a number of rescue schemes in the pipeline to help the American economy. It is also understood that both George Bush, the US President, and Barack Obama, the President-elect, are drawing up plans for a second fiscal stimulus package that would return tax rebates to Americans as part of an attempt to boost spending.

It is believed that Washington is trying to force through such a package — estimated to be worth $350 billion (£236.8 billion) — by the end of the year.

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