The goal will be to prevent millions of American families from losing their homes because they can't make mortgage payments.
"In the end, all of us are paying a price for this home mortgage crisis," President Obama said of the plan Wednesday. "And all of us will pay an even steeper price if we allow this crisis to deepen."
Listen to President Obama announce the housing plan:
A key component of the plan, called the Homeowner Stability Initiative, will provide incentives to lenders to cut monthly mortgage payments to sustainable levels for homeowners on the brink of foreclosure. It defines this at no more than 31 percent of homeowners' income.
The plan's costs are expected to be offset by funds from the $700 billion banking rescue package.
Mr. Obama outlined the mortgage initiative Wednesday at a high school in Mesa, Ariz., one of the states hardest hit by mortgage defaults. More than 2 million American homeowners faced foreclosure proceedings last year, and that number could reach as high as 10 million in the coming years depending on the severity of the recession, according to a report last month by Credit Suisse.
"In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen," Mr. Obama planned to say, according to prepared remarks.
The plan will include several elements, reported the Washington Post. It will encourage lenders to lower borrowers' payments to affordable levels, perhaps through the government subsidizing lower interest rates. It also will establish industry standards for modifying troubled loans, which could include extending the terms of loans or giving borrowers a short-term break on payments.
The plan aims to help some homeowners refinance their mortgages if they owe more than their homes are valued and bankruptcy judges would be given more authority to change mortgages.
Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 million to 5 million families do just that -- if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac, the AP reported.
Key players in the mortgage industry already had halted foreclosures pending Obama's announcement.
"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly," Mr. Obama said. "It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans."
As part of the housing rescue plan, the Treasury Department would double its financial support for housing finance giants Fannie Mae and Freddie Mac, allowing them to play a bigger role supporting housing as part of a fresh foreclosure mitigation plan, according to Reuters.
The Treasury said it was increasing its preferred stock purchase agreements with the two government-controlled companies to $200 billion each from $100 billion. It also said it was raising the limit on the size of the mortgage portfolios the two companies can hold by $50 billion to $900 billion each, along with a corresponding increase in their allowable debt outstanding.
The plan will take effect March 4, when the administration publishes detailed rules explaining it, the New York Times reported.