Sources say the Obama administration’s housing plan, to be unveiled Feb. 18, will allow bankruptcy judges to modify mortgages and will use Fannie Mae and Freddie Mac to refinance borrowers who owe more than their homes are worth but are current on their payments.

It also will reduce loan payments for struggling home owners through lower interest rates or longer loan terms, with the government possibly giving lenders a subsidy of $800 to $1,000 per loan to minimize losses.

Home owners could be forced to ultimately repay the difference between their original and reduced payments–a provision meant to keep borrowers from defaulting for the purpose of qualifying for assistance, and the administration also wants Fannie Mae and Freddie Mac to adopt national loan modification standards.

Source: The Wall Street Journal, Deborah Solomon (02/18/09)