The U.S. government is working on a new federal program that could provide government guarantees for up to $500 billion to $600 billion of home mortgages to help prevent foreclosures, according to published reports.

The plan, being put together by the Federal Deposit Insurance Corp. and the Treasury Department, could provide guarantees for up to 3 million at-risk mortgages, Reuters reports, citing a source.

A final deal had not been reached as of Wednesday and negotiations could still fall apart, but government agencies were contemplating using around $50 billion from the recently passed bailout of the financial industry to guarantee about $500 billion in mortgages, the Associated Press reports.

The plan could include loan modifications that would lower interest rates for a five-year period, the AP reports, citing two people briefed on the plan.

A Treasury spokeswoman said the Bush administration "is looking at ways to reduce foreclosures, and that process is ongoing," but hasn't decided on a final approach, according to the AP.

The program would be managed by the FDIC and would be available to banks, savings and loans, investment funds, hedge funds and other mortgage holders, Reuters reports. It would encourage the lenders to rewrite the distressed mortgages, converting them into affordable plans.

FDIC Chair Sheila Bair told lawmakers last week that the existing $700 billion financial rescue plan gives the Treasury Department the power to use loan guarantees and credit enhancements to facilitate loan modifications and prevent avoidable foreclosures.

Bruce Marks, chief executive of the Boston-based Neighborhood Assistance Corp. of America, called on Fannie Mae ( FNM) to adopt a program similar to the one the FDIC put in place at failed IndyMac Bank , the AP reports. Borrowers there are getting interest rates of about 3% for five years.

Over the past 10 weeks, Fannie Mae says it has received more than 40,000 defaulting loans and stopped 80% of them from going into foreclosure, the AP reports.
This article was written by a staff member of TheStreet.com.