The mortgage program is part of a $275 billion housing stimulus program that President Barack Obama announced last month. Called the Making Home Affordable Initiative, the program gives a swath of homeowners new opportunities to modify loans they are unable to pay. The measures are available to four to five million homeowners who have mortgages owned or guaranteed by Freddie Mac and Fannie May.
The program is expected to run through 2012 and may help as many as nine million families avoid foreclosure.
In a statement, Treasury Secretary Timothy Geithner said that "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 markets, just as we work to stabilize our financial system, create jobs and help businesses thrive."
The program works by giving cash incentives to loan servicers to reduce monthly payments, but will only modify single-dwelling mortgages made before Jan. 1, 2009 that are worth up to $729,750. For those who stay up-to-date on their modified loans, the Treasury will help reduce the principle, which could add up to $5,000 over five years.
Lenders could reduce a borrower's interest rate to as low as 2 percent for five years. Rates would then rise to about 5 percent until the mortgage is repaid.
The reduced payments, according to the New York Times, could be in the form of a lower interest rate, longer mortgage term or lowering the outstanding loan amount.
The Treasury Department released details of the guidelines online at financialstability.gov. Among the documents:
Borrower Information: Marking Home Affordable Refinance and Modification Options
Fact Sheet on the Program [PDF]
Summary of Guidelines [PDF]
Modification Program Guidelines [PDF]
Housing Counselor Q&A [PDF]
Consumers can contact their loan servicer to find out if their mortgages are held by Fannie or Freddie. The two mortgage finance companies own or guarantee almost 31 million home loans - more than half of all U.S home mortgages.
Government officials acknowledged, however, that the initiatives are only a partial fix for a broad mortgage problem that helped propel the economy into recession.
"It's not intended to prevent every foreclosure or to help every homeowner," a senior Treasury Department official told reporters, according to the Associated Press. "It's really targeted at responsible homeowners."