Relief Nears for 3 Million Strapped Homeowners

By MICHAEL R. CRITTENDEN and JESSICA HOLZER

WASHINGTON -- The U.S. government's latest plan to aid struggling homeowners could move as many as three million people into more-affordable mortgages, according to people familiar with the effort.

The proposal, which has been designed by the Treasury Department and Federal Deposit Insurance Corp., is close to being finalized. Estimated to cost between $40 billion and $50 billion, the plan would have the government agree to share a portion of any losses on a modified mortgage offered by lenders.

Funding for the plan could potentially come out of the $700 billion financial-rescue program authorized by Congress earlier this month. The plan, which was previewed during Congressional testimony last week, would represent one of the most aggressive and sweeping moves to address the nation's foreclosure mess, among the last elements of the crisis yet to be addressed by concerted government intervention.

Corinne Hirsch, a spokeswoman with the White House's Office of Management and Budget, said the program "is currently in a White House policy process," suggesting it's in the final stages of being reviewed. Treasury spokeswoman Jennifer Zuccarelli said "the administration is looking at ways to reduce foreclosures."

FDIC spokesman Andrew Gray said: "While we have had productive conversations with Treasury and the administration about options for the use of credit enhancements and loan guarantees, it would be premature to speculate about any final framework or parameters of a potential program."

The program is one of a series of ideas under consideration designed to address the root causes of the financial crisis.

At a conference Wednesday, FDIC Chairman Sheila Bair, who first suggested such a plan, said policy makers need to take additional action to help people stay in their homes, in order to prevent the continued downward spiral of the housing market. "Everyone in Washington now agrees that more needs to be done to help homeowners," she said. Ms. Bair noted the FDIC was working to implement a framework for systematically modifying loans.

The legislation authorizing the Troubled Asset Relief Program required Treasury to take steps to help homeowners avoid foreclosure. As many as 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes, according to Moody's Economy.com, a research firm.

Write to Michael R. Crittenden at michael.crittenden@dowjones.com and Jessica Holzer at jessica.holzer@dowjones.com