NEW YORK (Bloomberg) — The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that's hammering US property values.

The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. Comptroller of the Currency John Dugan, who regulates national banks, said yesterday that "working out the details of it is still something that's ongoing".

"We need to help more people stay in their homes" through helping mortgage lenders make more loan modifications, James Lockhart, director of the Federal Housing Finance Agency, said in an interview with Bloomberg Television. "I'm pleased that the new administration is starting to work on that area."

President Barack Obama's team is preparing the biggest effort yet to arrest foreclosures, part of a three-pronged attack on the financial crisis that also aims at restarting business and consumer lending and overhauling regulation. As banks dump on the market the properties acquired through borrower defaults, they are contributing to the biggest slide in property values since the Great Depression.

The biggest challenge is finding a way to value banks' toxic assets so that the government can buy or insure them while providing some limit to taxpayer losses, Dugan said. An announcement on the strategy may come early next week, an administration aide said.

The proposal to guarantee modified mortgages is a variation of an idea backed by the Federal Deposit Insurance Corp. The administration plans to spend as much as $100 billion of the second $350 billion installment of the Treasury's financial-bailout fund on home-loan initiatives.

Some 1.5 million foreclosures might be prevented this year in a programme that would pay servicers $1,000 to modify a troubled loan by reducing the interest rate, forgiving a portion of the principal or extending the repayment plan, FDIC chairman Bair has estimated. The government would then absorb as much as 50 percent of any loss if the rewritten loan defaults again.

Dugan said in an interview yesterday in Washington that the approach should include a provision that would delay a government guarantee for a modified mortgage for a set period of time to ensure that the loan is sustainable.

"It is really important that when you have a modified loan that the payment become affordable to the homeowner," Dugan said. "You wouldn't want the government to be on the hook for someone who borrowed a lot more in credit-card debt, or what have you, and then couldn't make their payments." Meanwhile, Treasury aides have approached Wall Street firms to gauge their appetite for participating in a so-called aggregator bank designed to remove toxic assets clogging banks' balance sheets.

They are also asking how a pricing model for the investments should be set up, financial-services industry officials said on condition of anonymity.

The administration is planning to outline stepped-up executive pay and dividend restrictions for companies that receive "exceptional" government aid later this week, helping to lay the groundwork for further help. Obama last week criticised the payment of Wall Street bonuses while the industry was receiving taxpayer funds as "shameful".

Larger firms will see bans on severance payments for the top five executives and limits on their bonus pools, along with 50 senior officers, to 60 percent of 2007 level, according to the Treasury. The department also requires that major expenses, like aircraft or conferences in exotic locales, get prior government approval.