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US expands help for property owners to combat foreclosure rise

Under the expanded plan some homeowners could see their payments fall significantly and the interest rate on their second mortgage pushed down to just 1%.

The move is regarded as a response to the fact that foreclosure rates are rising despite the housing help programme being launched two months ago. Although the latest measures could take months to have any effect officials claims it will help up to 1.5 million property owners.

'Ensuring that responsible homeowners can afford to stay in their properties is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind,' said Treasury Secretary Timothy Geithner in a statement.

The administration's housing plan pays lenders to help borrowers stay in their homes by modifying their mortgages to an affordable level. But, the plan as first announced in February applied only to primary mortgages. Now, lenders will be eligible for payments when they modify the terms of a second mortgage, including a home-equity line.

It is estimated that about 50% of at-risk borrowers have a second mortgage which can make it difficult for them to afford their homes even after payments are cut on their primary mortgages. Second mortgages were popular during the housing boom for buyers who could not afford big down payments.

Under the new plan lenders will receive $500 for modifying the second mortgage, plus $250 a year for three years if the loan remains current. The borrower will be eligible for $250 a year for five years to lower their main balance. The borrower could have the interest rate lowered to 1%, depending on the type of loan, with the government sharing the cost of the rate reduction.

Critics point out, however, that the plan remains voluntary for many banks. And they also say that the Hope for Homeowners programme that was launched last year to re-finance homeowners into more affordable mortgages has only helped one property owner so far.