The program was put together by six of the nation's largest financial institutions, which service almost 50 percent of the nation's mortgages.
These lenders say they will contact homeowners who are 90 or more days overdue on their monthly mortgage payments. The homeowners will be given the opportunity to put the foreclosure process on pause for 30 days while the lenders try to work out a way to make the mortgage more affordable to homeowners.
"Project Lifeline is a valuable response, literally a lifeline, for people on the brink of the final steps in foreclosure," Housing and Urban Development Secretary Alphonso Jackson said at a joint news conference with Treasury Secretary Henry Paulson.
He said the goal was to provide a temporary pause in the foreclosure process "long enough to find a way out" by letting homeowners and lenders negotiate a more affordable mortgage.
Paulson said the new effort was just one of a number of approaches the administration was pursuing with the mortgage industry to deal with the country's worst housing slump in more than two decades.
In December, President Bush announced a deal brokered with the mortgage industry that will freeze certain subprime loans - those offered to borrowers with weak credit histories - for five years if the borrowers cannot afford the higher monthly payments as those mortgages reset after being at lower introductory rates.
"As our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures," Paulson said. "However, none of these efforts are a silver bullet that will undo the excesses of the past years, nor are they designed to bail out real estate speculators or those who committed fraud during the mortgage process."
In coming days, lenders will begin sending letters to homeowners who might qualify for the new program. Homeowners won't qualify if they have entered bankruptcy, if they already have a foreclosure date within 30 days, or if the home loan was taken out to cover an investment property or a vacation home.
The Mortgage Bankers Association reported that at least 1.3 million home mortgage loans were either seriously delinquent or in foreclosure at the end of the July-September quarter.
Private economists are forecasting that the number of foreclosures could soar to 1 million this year and next, about double the 2007 rate.
Officials did not have an estimate of how many people might be helped by the new "Project Lifeline" program.
Democratic critics said the administration was still not doing enough to help with a serious crisis that has slowed the overall economy to a near standstill and raised worries about a full-blown recession.
In a statement, Sen. Hillary Rodham Clinton, who is running for the Democratic presidential nomination, said that last year she had called for a 90-day moratorium on subprime foreclosures. She said the administration has been slow to react to the unfolding crisis.
"The administration's latest initiative is welcome news, but more remains to be done," she said in a statement.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the finance industry and the administration were falling further and further behind in dealing with the growing crisis.
"This plan, while a step in the right direction, will not stem the tide of the millions of foreclosures we are facing in the coming months," Dodd said in a statement. His committee will hold a hearing on the housing crisis on Thursday with testimony from Paulson and Federal Reserve Chairman Ben Bernanke.
The six participating banks are Bank of America Corp., Citigroup Inc. Countrywide Financial Corp., J.P. Morgan Chase and Co., Washington Mutual Inc. and Wells Fargo & Co.
They are all members of the Hope Now Alliance, an industry group that is trying to coordinate a response to the mortgage crisis. Officials urged homeowners to call the group's toll free hot line number at 1-888-995-HOPE for assistance.
