WASHINGTON The Obama administration is crafting a mortgage-rescue program that would see Fannie Mae and Freddie Mac ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same, sources familiar with the plan said.
Late last week, officials from the Treasury Department and Department of Housing and Urban Development worked with the companies' regulator to agree on standards for who could get relief and how they might coax other finance companies to follow their lead, said two industry sources familiar with the deliberations.
Those discussions were still going on over the weekend with Treasury officials trying to weigh the merits and costs of several possible approaches, said one source familiar with the talks.
Washington's two largest foreclosure-prevention initiatives of the last 12 months have fallen flat with only a handful of borrowers having been helped despite promises that hundreds of thousands would qualify.
Officials hope to clear the red tape and rigid terms that have doomed past mortgage-aid efforts without burdening taxpayers with many billions of dollars in funding costs.
"They want to get rid of all the high-cost mortgages out there and figure that there are 1.5 million people who could stay in their homes this year if their loans were modified," said one industry source who asked for anonymity. "But it's just really complicated and expensive to do these kind of workouts."
Since Fannie Mae and Freddie Mac were nationalized in September, the government-controlled companies have been retooled as agencies for delivering housing aid. Both put a moratorium on foreclosures late last year, and are pioneering programs to let borrowers rent their homes after default.
But while Fannie Mae and Freddie Mac have had some success with stopgap measures to keep people in their homes, the companies' effort to rewrite home loans announced in November has been a disappointment, industry sources said.
Fannie Mae and Freddie Mac own or insure 31 million mortgages -- about 58 percent of all U.S. single-family home loans -- but only a fraction of their borrowers qualify for a refinancing program that was meant to save several hundred thousand. A similar initiative run by the Department of Housing and Urban Development that promised to help 400,000 borrowers has only reached a few hundred.
Policy-makers agree they must relax the terms of any new foreclosure-prevention effort and are trying to identify which tardy borrowers could keep up payments under a new home loan, said two industry sources.
Fannie Mae and Freddie Mac will likely be the cornerstone of an administration mortgage-aid program that will tap between $50 billion and $100 billion from the government's $700 billion financial rescue fund.
The money would be used to underwrite failing loans and give mortgage companies a subsidy to follow the lead of the two government-controlled companies, industry sources said.
Officials are also discussing how fresh legislation from Congress could buttress their efforts by clearing some accounting and legal hurdles that obstruct loan modifications, the sources said.
Treasury Secretary Timothy Geithner could nod to the evolving plans on Tuesday when he lays out the administration's thinking on how to use the funds remaining in the $700 billion program, although details might take longer to work out.