The two largest US mortgage finance companies unveiled a plan yesterday to cut monthly payments for struggling borrowers in the latest effort to reverse a wave of defaults threatening the economy, Reuters reports from Washington.

Homeowners who face foreclosure and are spending more than 38 per cent of their income on mortgage payments could have their monthly payments reduced by Fannie Mae and Freddie Mac, said sources familiar with the plan.

The two companies own or insure about half of US home loans, and the move is expected to provide relief for hundreds of thousands of borrowers.

The programme is the latest in a series of what critics say have been piecemeal moves to address the record foreclosure rate and plummeting house prices.

Financial Times, The Times