America’s $75 billion mortgage bailout programme opened for business today, as it emerged that 20 per cent of homeowners had fallen into negative equity.

The US Government revealed for the first time the rules under which homeowners would be eligible for the bailout, called the Home Affordability and Stability Plan, which was designed to prevent people from losing their homes to foreclosure.

Stung by criticism that it was bailing out people that knowingly bought properties they could not afford, the White House said that it would force heavily-indebted individuals to go to counselling in return for assistance.

Timothy Geithner, the Treasury Secretary, said: "It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing market."

Up to four million homeowners will be permitted to modify their mortgages so that their monthly repayments come to no more than 31 per cent of their gross monthly income.

Individuals can contact their lender from today to reorganise their mortgages as long as they meet the following criteria:

• obtained the mortgage before January 1, 2009

• have a primary mortgage of less than $729,500

• live in the property

• can document income with a tax return and two pay slips

• sign a statement declaring financial hardship

• attend financial counselling if total debt, including car and personal loans, comes to more than 55 per cent of income

The programme will run until 2012 but homeowners will be permitted only one loan modification in that period.

Separately, a further four million to five million people will be able to refinance their mortgage to reduce its cost, even if they have little or no equity in their homes. Previously, homeowners in with a loan-to-value ratio of more than 80 per cent had been unable to refinance their loans.

Individuals will be eligible for the programme, which will run until June 2010, if their mortgage was loaned or guaranteed by Fannie Mae or Freddie Mac, the state-controlled mortgage giants that have been given up to $1 billion by the Government to improve loan conditions.

First American CoreLogic, mortgage analysis company, said that about 8.3 million properties were in negative equity by the end of 2008, up from 7.6 million at the end of the third quarter of last year.

This meant that the owners of 20 per cent of all private properties were paying more on their mortgage than the house itself was worth in the current market.

A further 2.2 million are on the brink of negative equity as house prices continue to plunge across America, First American said.

The total value of residential properties fell from $21,500 billion at the end of 2007 to $19,100 billion last year.

About 68 per cent of American adults own their own homes, 66 per cent of which have a mortgage on the property.

Congress is expected to vote as early as tomorrow on legislation that would allow bankruptcy court judges to force lenders to modify mortgage repayment terms.

Under the terms of the bailout, lenders will get bonuses of up to $1,500 per loan in return for helping customers stay up to date with their repayments.

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