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The Obama plan will use $75 billion from the $700 billion financial bailout fund to match reductions lenders make in interest payments that lower borrowers’ payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower’s income, with government sharing the cost to further cut the rate to 31 percent.

Treasury will share the cost when lenders reduce monthly payments by forgiving a portion of the borrower’s mortgage balance, the government said. The program may help as many as 4 million borrowers, the administration said. The average borrower’s home value could be stabilized against a price decline by up to $6,000, the White House fact sheet said.

‘Aimed at Homeowners’

“We think it is accurately aimed at homeowners at risk that are most likely to represent avoidable foreclosures, so it is likely to have a maximum impact where the dollar is committed,” said Robert Davis, executive vice president of the American Bankers Association, in a telephone interview.

Banks accepting help from the government must adopt loan modification plans, the government said.

Companies that service mortgages will get $1,000 for each modified loan, and as much as $1,000 for three years when the borrower stays current, the government said. Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans, according to the plan.

Mortgage servicers will get $500 and loan holders $1,500 to modify agreements as an incentive for the industry to seek out borrowers at risk of falling behind on their payments.

“The Obama team is betting that if they can afford to stay in the home month-to-month, that borrower is not concerned about what today’s value of the home happens to be,” Howard Glaser, former counsel to the secretary of the U.S. Department of Housing and Urban Development, said today in a telephone interview. “I think that’s the right bet.”

Mortgage Principal

Focusing on reducing the mortgage principal would have been a “prohibitively expensive proposition,” said Glaser, a Washington-based mortgage-industry analyst.

Treasury will increase the size of Fannie and Freddie’s retained mortgage portfolios, to $900 billion, allowed under the preferred stock agreement included in the September federal takeover of the two mortgage-finance companies.

“It is an indication they are not looking at shuttering them to move their responsibilities elsewhere