Obama housing plan will have impact in March: Bair

FDIC Chairman Sheila Bair testifies before the House Financial Services Committee, about housing foreclosures, on Capitol Hill, September 17, 2008.

WASHINGTON (Reuters) - The Obama administration's $275 billion program to stem a wave of U.S. home foreclosures will start having an impact as soon as March, Federal Deposit Insurance Corporation chairman Sheila Bair said on Thursday.

"I think you'll start seeing an immediate impact in the increase of meaningful loan modifications in March, when the program becomes effective," Bair said on ABC's "Good Morning America."

The plan, unveiled on Wednesday, would allow up to 4 million borrowers facing foreclosure to get their payments reduced through modifications jointly paid for by lenders and the U.S. Treasury.

An additional 5 million who cannot qualify for conventional refinancing because their home values have dropped could refinance through housing finance companies Fannie Mae and Freddie Mac.

Bair said applicants would need to show that it makes financial sense for them to stay in their homes if payments are reduced.

"We'll take time to work through these incomes, verify the incomes, and get the payments to an affordable level, but I believe you'll start seeing a real impact in March, with meaningful long-term, sustainable modifications," she said.

The U.S. program is aimed at borrowers who are delinquent on their monthly mortgage payments for their primary residence. Borrowers who have lost a job or have higher expenses, and are struggling to make their payments may be eligible.

Under the plan the lender would lower a borrower's monthly payment so that it is no greater than 38 percent of the borrower's income, then the government will help bring down payments further to a 31 debt-to-income ratio. The modified mortgages would also be kept in place for five years.

The U.S. plan also offers incentives for servicers.

The FDIC, which guarantees up to $250,000 per depositor at insured banks, has proposed its own mortgage modification plan after modifying IndyMac's assets when the bank failed last year.

Consumer groups and Democratic lawmakers in Congress have praised the FDIC's efforts and calls for loan modifications.

The FDIC, the Department of Housing and Urban Development and other government agencies are trying to put the U.S. plan in place by March 4.

(Reporting by Andy Sullivan and John Poirier, editing by Mohammad Zargham, Bernard Orr)