The US government has announced a sweeping programme to ease payment terms for hundreds of thousands of homeowners struggling to meet mortgage payments held by finance giants Fannie Mae and Freddie Mac.

To qualify for the programme, which goes into effect December 15, borrowers would have to be at least three months behind on their home loans, and would need to owe 90 per cent or more than the home is currently worth. The interest rate would be reduced so that borrowers would not pay more than 38 percent of their income on housing expenses.

Another option is for loans to be extended from 30 years to 40 years, and for some of the principal amount to be deferred interest-free.

“Today, we’re announcing a major program designed to greatly reduce preventable foreclosures with a simplified, streamlined loan modification program to get struggling homeowners into mortgages that they can afford,” said James Lockhart, director of the Federal Housing Finance Agency, which temporarily took over struggling Fannie Mae and Freddie Mac in September.

“It is an achievable goal if homeowners, banks, mortgage servicers and investors, Fannie Mae, Freddie Mac all work together," he said.

Fannie Mae and Freddie Mac own or guarantee about half of US home loans.

While lenders have stepped up their efforts to aid borrowers over the past year, earlier attempts have not kept up with the worst housing recession in decades.

More than 4 million American homeowners, or 9 per cent of borrowers with a mortgage were either behind on their payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association.

Nevertheless, today’s announcement coupled with recent and more aggressive strategies from the major retail banks are important steps to fix the housing crisis.

Citigroup announced yesterday it is halting foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments. The New York-based banking giant also said it is working to expand the program to include mortgages for which the bank collects payments but does not own.

Additionally, over the next six months, Citigroup plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are on the verge of falling behind. This represents about one-third of all the mortgages that Citigroup owns, the bank said.

Citigroup plans to devote a team of 600 salespeople to assist the targeted borrowers by adjusting their rates, reducing principal or increasing the term of the loan.

Late last month, JPMorgan Chase expanded its mortgage modification program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The bank has already modified about $40 billion in mortgages, helping 250,000 customers since early 2007.

Bank of America, meanwhile, has said that starting December 1, it will modify an estimated 400,000 loans held by newly acquired Countrywide Financial as part of an $8.4 billion legal settlement reached with 11 states in early October.

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