The Obama administration announced today that it will throw $US75 billion at the country’s massive foreclosure problem: As many as 9 million mortgages could be impacted, including at-risk mortgages and conforming loans that have been paid on-time.

The sweeping plan, which could be a boon for laid-off mortgage employees who could potentially be rehired in a new capacity, includes loan-to-value exceptions on conforming refinances, bankruptcy cramdowns and cash payments for successful modifications.

The Homeowner Affordability and Stability Plan was announced today by the U.S. Department of the Treasury. The program starts on March 4, at which point details about eligibility will be revealed.

The Treasury indicated that 4 million to 5 million borrowers with LTVs between 80 and 105 percent who have made on-time payments on loans managed by the troubled housing finance compaies Fannie Mae or Freddie Mac will be able to refinance to at today’s lower rates. Borrowers with second mortgages are eligible as long as the first mortgage doesn’t exceed 105 percent.

In addition, the plan includes a $US75 billion initiative to support modifications that lower mortgage payments for between 3 million and 4 million at-risk borrowers primarily with subprime and exotic loans. Only owner-occupied one to four-unit properties will be eligible. Borrowers who have paid as agreed but are at risk of imminent default will also benefit from this initiative.

“Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels,” the Treasury said.

That goal will be achieved by requiring lenders to reduce the interest rate or loan balance to a level that brings the debt-to-income ratio down to 38 percent. The government would then match further reductions by lenders so that the ratio is reduced to 31 percent. The rate can be gradually increased again after five years to conforming rates at that time.

Servicers will receive a $US1000 up-front fee for each qualified modification completed and $US1000 each year for up to three years as long as the modified mortgage remains current. In addition, if the modification is completed before the loan becomes delinquent, the servicer will receive a $US500 incentive and the mortgage holder will receive a $US1500 incentive.

Borrowers will also receive a $US1000 reduction to their principal balance each year they stay current for up to five years.

The Treasury will work with the Federal Deposit Insurance Corporation to create a $US10 billion fund to subsidize lenders for losses on modified loans if home prices decline. This move is designed to eliminate the motivation for servicers to foreclose sooner because home prices might fall further.

Using the FDIC’s streamline modification program as a template, the Treasury said it would develop uniform modification guidance for the foreclosure prevention plan. The guidelines will be mandatory at government agencies, government sponsored enterprises and any financial institutions that receive future federal assistance.

The Treasury said it hopes to impact foreclosures by allowing judicial modifications of mortgages for bankrupt borrowers with no other options and by improving the flexibility of the Hope for Homeowners program.

The nation’s financial institutions support foreclosure prevention.

The American Bankers Association issued a statement noting, “we agree with the emphasis on support for preventing foreclosures, as we have previously testified, since housing and foreclosure issues are still at the core of our economic problems”.

Mortgage bankers were unhappy with the lack of help on loans with LTVs above 105 percent, the exclusion of jumbo mortgages from the plan and inadequate safe harbor for servicers, a statement from the Mortgage Bankers Association said. The cramdown provision also disappointed the trade group.

The Treasury’s program will utilize funds from the Troubled Asset Relief Program and rely on the “the full strength of Fannie Mae and Freddie Mac”.

Foreclosure and online business professor at the University of California, Dr. Danielle Babb said that as a result of the Homeowner Affordability and Stability Plan, mortgage companies will shift salespeople to loss mitigation departments.

In addition, Babb noted that many former employees with refinance experience would be rehired. She said employees would need to retrain to understand the new rules.

The plan is also expected to increase demand for mortgage-backed securities pushing prices higher, Babb said.

The stock market stood firm after the plan was announced, with the Dow Jones Industrial Average more than 10 points higher in late trading after being down more than 70 points earlier today.