The home-loan industry, facing the worst housing downturn since the early 1990s, is ramping up efforts to help strapped borrowers stay in their homes.

The goal is to restrain a gathering wave of foreclosures that carries big costs for both lenders and borrowers.

This rescue effort isn't expected to save every at-risk homeowner. But it promises to reduce monthly payments for many who have fallen behind on mortgages. In the process, it could help to stabilize a struggling real estate market.

So far the housing slump, precipitated in part by overzealous borrowing and subprime lending, continues its downward slope. In discouraging news for homeowners and homesellers nationally, a report Tuesday showed "the deceleration and declines in home prices are showing no signs of turnaround." Citing February data, Standard & Poor's Case-Shiller index of housing prices in 10 cities posted a 1.5 percent drop from February 2006 – an annual decline not seen in 15 years.

That news follows hard on a revised 2007 price forecast by the National Association of Realtors. NAR said this month it no longer expects the median price of an existing home to rise this year, predicting instead a 0.7 percent decline. The slower recovery, it said, is a result of "tighter lending criteria and fallout from the subprime loan debacle."

Some lenders offer to refinance
Impelled by financial and political pressures to try to curtail foreclosures, lenders are taking action on several fronts:

• Fannie Mae, America's leading mortgage lender, says it plans to help as many as 1.5 million "subprime" borrowers – people with low credit ratings – refinance out of high-interest loans.

• Freddie Mac, which like Fannie Mae is a government-backed corporation, is creating new products to make homes more affordable to buyers with poor credit. Freddie Mac doesn't make loans directly but pledges to buy as much as $20 billion worth of these mortgages from participating lenders.

• Washington Mutual, another giant lender, says it will refinance $2 billion in subprime loans, helping borrowers avoid foreclosure. The new loans will come with below-market interest rates.

• Some finance companies are partnering with nonprofit organizations that act as advocates for at-risk borrowers.

• In addition to efforts by specific companies, the Mortgage Bankers Association announced a foreclosure-prevention campaign in partnership with the nonprofit group NeighborWorks America. They will link homeowners to a free counseling hotline (888-995-HOPE) provided by the Homeownership Preservation Foundation, boost the capacity for homeownership counseling within NeighborWorks, and conduct a national ad campaign for homeowners in financial distress.

All of this represents significant relief, but the magnitude of the problem is large and growing.

"We're struggling to provide help" to troubled borrowers, says Robert Pulster, who heads a Boston nonprofit group called Ensuring Stability through Action in our Community. "We're seeing double the problem that we were seeing last year."

The lenders themselves are careful not to overstate what the new projects can achieve. "While these efforts will help cushion the expected rise in foreclosures, we need to be clear that these offerings are not a panacea," said Richard Syron, chief executive of Freddie Mac, as he unveiled the new products at a congressional hearing April 17.

Even when the economy and the housing market are strong, some borrowers run into financial difficulty because of events such as job loss, divorce, or illness.

Over the past year, two other factors have driven the rise in past-due loans and foreclosure filings.

One is known as "payment shock," when adjustable-rate loans reset sharply upward. Lenders in recent years failed to consider whether the borrowers will be able to afford their loans once initial "teaser" rates adjust, critics charge.

The other is simply that a decade-long housing boom stalled out. Some who bought homes near the market peak – often with no down payment – owe more than the house is now worth. So selling it offers no sure escape route from foreclosure.

But foreclosure is costly for lenders, chewing up tens of thousands of dollars in missing loan payments, home-sale expenses, and property maintenance. If foreclosures are concentrated in a community and drag down home values, that's bad for lenders' business prospects.

Politicians have been prodding lenders to help at-risk homeowners. In congressional hearings, Democrats have bashed the mortgage industry for helping to create the problem. Nonprofit organizations have added to the pressure.

Rita Askew, safe at home
Rita Askew of Evanston, Ill., is one borrower who remains in her red-brick townhouse thanks to help from her lender and community groups.

Her husband, the family breadwinner, had to leave his school-maintenance job for several months last year because of an accident. "I probably would have been selling my house," Mrs. Askew says, if the National Training and Information Center (NTIC) hadn't stepped up for her.

NTIC helped win a loan-modification accord that cut the monthly payment from $1,668 to $1,117. The interest rate dropped from 10.6 percent to 6.0 percent.

Several major lenders, including Ocwen Financial Corp., CitiFinancial, and Select Portfolio Servicing Inc., have agreed to partner with NTIC to negotiate "workout" deals when possible for troubled loans.

But for people who face difficulty paying their mortgages, the choices can narrow quickly if the loans go unpaid for a month or more.

Borrowers can seek a traditional refinance deal with any lender. They can seek temporary forbearance or a loan modification deal. Some can successfully sue the lender, showing that the original loan process violated state or federal laws. Or they can try to sell the home, perhaps talking the lender into accepting proceeds that fall short of the loan balance due.

Housing advocates say to beware of "rescue" scams, outfits that charge big fees and then fail to help people stay in their homes.

WASHINGTON - The heads of Fannie Mae and Freddie Mac said Tuesday the mortgage finance giants are developing new types of loans to help distressed borrowers with high-risk mortgages keep their homes at a time of rising foreclosures.

A key federal regulator also urged lenders to step in now and extend flexible terms to struggling homeowners.

The moves by the two government-sponsored companies, the biggest buyers and guarantors of home mortgages in the country, came in response to the turmoil in the market for so-called subprime mortgages, higher-priced loans for people with tarnished credit or low incomes who are considered greater risks. In recent weeks, the distress has roiled financial markets and stoked anxiety that it could spill over into the broader economy.

The companies' initiatives were disclosed by their chief executives at a hearing by the House Financial Services Committee.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., exhorted mortgage lenders to show flexibility toward borrowers to help staunch a flood of defaults among homeowners with subprime loans.

Many of those borrowers "could avoid foreclosure if they were offered (loans) that allow for affordable mortgage payments," Bair testified. "Restructuring their loans into more affordable products, especially 30-year fixed-rate mortgages, would bring them back to good standing, allow them to repair their credit histories and dampen the impact that foreclosures may have on the broader housing market."

Most importantly, Bair added, "people would be able to stay in their homes."

The home-mortgage business has exploded in the last two decades with big Wall Street investment firms buying loans in bulk from banks and other lenders, and bundling them into securities to be sold to investors, spreading the risk. That has complicated the mortgage industry picture and the search for solutions to the immediate crisis.

Amid rising pressure to act, Democrats in power positions in Congress have started drafting legislation to curb abusive mortgage lending practices that especially target minorities and the elderly, putting people into home loans that they cannot afford to repay.

The greater distance now usually separating the home borrower and the ultimate holder of the mortgage, Bair acknowledged, "has complicated the ability of interested parties to apply flexibility and creativity to assist borrowers facing difficulty."

Richard Syron, Freddie Mac's chairman and chief executive, said the company is "working on a major effort to develop more consumer-friendly subprime products that will provide stable financing alternatives going forward," which are expected to be available by midsummer.

He said the new products will include 30-year and possibly 40-year fixed-rate mortgages as well as adjustable-rate mortgages with longer fixed-rate periods.

Fannie Mae, in a new program called "HomeStay," is offering new options so that lenders can help subprime borrowers refinance out of high-interest adjustable-rate mortgages or other difficult loans, said President and CEO Daniel Mudd. He said the company plans to stretch the term on subprime loans to 40 years from the current maximum 30 years — which will reduce monthly payments for borrowers by around 5 percent.

Adjustable-rate mortgages, known as ARMs, are especially prevalent in the subprime market. They are considered higher-risk loans because they typically draw borrowers in with an initial teaser interest rate, which can spike upward after the first two or three years. About 1.8 million ARMs are resetting to higher rates this year and next, making foreclosures sure to continue rising, according to a new report by Congress' Joint Economic Committee. Areas said to be hardest hit by foreclosures include Atlanta, Indianapolis, Denver, Dallas and Detroit.

Fannie Mae and Freddie Mac were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and turning them into securities for sale on Wall Street. They have grown dynamically in recent years and now finance or guarantee some $4 trillion of home mortgages, representing about half of the single-family mortgages in the country.