The Obama administration is considering how to purge the U.S. financial system of many problem mortgages that fueled a housing bubble, whether or not borrowers are now delinquent, according to sources familiar with policy-makers’ deliberations.

The plan would target many homeowners who relied on novel loans to buy into the height of the housing market boom. Many of those borrowers are seeing their housing costs increase while the value of the property sinks and the Wall Street firms that bought those loans are saddled with the failed assets.

Mortgage finance companies Fannie Mae and Freddie Mac could soak up the problem loans or the government might subsidize the borrowers who wish to refinance under two scenarios being considered, sources said.

Such a move would mark a significant departure for policy-makers who have so far focused on borrowers who have already fallen seriously into arrears.

Treasury Secretary Timothy Geithner and Shaun Donovan, the secretary for housing and urban development, will meet with community groups and other housing stakeholders on Wednesday to discuss the plans for mortgage aid.
(Reuters)