The US Treasury is working on a new plan to help revive the ailing housing market by reducing mortgage rates on new home loans, according to people briefed on the situation.

The plan, which is at preliminary stages and could change, would involve using government-sponsored mortgage financiers Fannie Mae and Freddie Mac to push down rates on 30-year mortgages to as low as 4.5%, or almost a full percentage point lower than current levels.

The Treasury already has a programme to buy mortgage-backed securities issued by Fannie and Freddie but the latest discussions come amid growing pressure on government officials to stimulate the weakening US housing market and stem foreclosures.

Hank Paulson, the US Treasury secretary, said in a speech on Monday that the department was continuing 'to examine potential foreclosure mitigation ideas that may be an appropriate and effective use of Tarp resources', referring to the $700bn troubled asset relief programme, of which half has been authorised for use

Financial Times, Daily Telegraph