UPDATE 3-U.S. housing agencies to widen homeowner help

(Recasts with announcement)

By Patrick Rucker

WASHINGTON, Nov 11 (Reuters) - The regulator for the two largest U.S. mortgage finance companies on Tuesday unveiled a plan to cut monthly payments for struggling homeowners in an effort to reverse a wave of defaults threatening the economy.

Homeowners who face foreclosure and are spending more than 38 percent of their income on mortgage payments could have monthly payments reduced by Fannie Mae (FNM.N) and Freddie Mac (FRE.P), the head of the Federal Housing Finance Agency said.

"The streamlined modification program complements existing loan mitigation programs," FHFA chief James Lockhart said at a news conference. "We expect that it could significantly increase the number of modifications completed."

Fannie Mae and Freddie Mac own or insure roughly half of U.S. home loans and the move is expected to provide relief for hundreds of thousands of borrowers.

Lockhart said borrowers eligible for the new program could see their mortgage rates cut, life of their loans extended or their principal reduced in an effort to ease their debt burden. He said only borrowers delinquent by 90 days or more would qualify for new loan terms.

The program is the latest in a series of what critics say have been piecemeal and ineffective moves to address the record foreclosure rate and plummeting home prices.

The plan outlined on Tuesday was conceived in part by Hope Now, an industry group midwifed by U.S. Treasury Secretary Henry Paulson last year to help troubled borrowers stay in their homes.

Hope Now has spurred mortgage finance companies to ease terms for troubled borrowers but those voluntary efforts have not been enough to halt the growing pace of foreclosures.

"This idea of bringing mortgage companies to the table with mild political pressure and hope that they will aid borrowers has not worked and I hope today's program goes further," said John Taylor of the National Community Reinvestment Coalition, which advocates on behalf of troubled borrowers.

U.S. officials hope the new plan will encourage other mortgage finance companies to show forbearance on troubled loans.

LOAN MODIFICATION MODEL

The plan is similar to one conceived by the Federal Deposit Insurance Corp to better match a troubled borrower's income with monthly payments, but the FDIC's proposal has yet to get off the ground.

Separately, the Department of Housing and Urban Development is considering expanding its aid program, Hope for Homeowners, under which HUD's Federal Housing Administration can tap a $300 billion kitty to underwrite failing loans, sources familiar with the plan have said.

That program, which Congress approved in July, went into effect in October. However, it got off to a slow start and officials are eager to loosen the terms and cut some red tape to make it more appealing to mortgage companies.

Under the program in its current form, a mortgage finance company must have a home reappraised and then erase 10 percent of its value before the loan can win a government guarantee. Policy-makers are considering lowering that required write-off, sources said. (Reporting by Patrick Rucker, Editing by Chizu Nomiyama)