WASHINGTON — Federal officials moved closer Wednesday to guaranteeing as much as $500 billion in mortgages after they are modified to make them more affordable to homeowners, part of the multifront battle to resuscitate the country's flagging economy.
The idea, outlined last week by Federal Deposit Insurance Corp. Chairwoman Sheila C. Bair, is to help millions of families stave off foreclosure by offering loan guarantees and other enhancements to encourage lenders to change the terms of troubled home loans, thus lowering monthly payments.
Also Wednesday, the Federal Reserve, as expected, cut its benchmark lending rate to 1%, matching the lowest level in four years. But economists and financial analysts doubted that the move would prevent a potentially long and deep recession.
The depth of the country's economic distress could become evident as soon as today, when the government releases its first estimate of third-quarter growth -- or, more likely, contraction -- in the economy.
Most economists are expecting a negative number, which would tend to confirm the consensus view that the economy already is in a recession.
The FDIC's plan to stave off the avalanche of foreclosures would be authorized under the $700-billion financial rescue package passed by Congress and would cost the government an estimated $40 billion to $50 billion.
The agency is trying to prod banks and other lenders to do what regulators have been asking them to do all along -- restructure loans. That could include such changes as lowering the interest rate, reducing the principal or lengthening the term of loans.
The proposed loan modifications are similar to those being implemented by Bank of America Corp.'s Countrywide unit, based in Calabasas, and by the FDIC for mortgages serviced by failed IndyMac Bank in Pasadena.
Details were still being worked out, and it was not clear how quickly the program would be unveiled, though pressure for action to help homeowners has grown since the approval of a succession of multibillion-dollar measures to aid financial institutions.
On the interest-rate front, the Fed dropped its benchmark federal funds rate -- the rate banks charge one another for overnight loans -- by half a percentage point, to 1%, only three weeks after a previous half-point cut.
Though analysts doubted the move would help the economy much, they praised it as a sign of the Fed's intention to act aggressively to stem the damage to the economy.
