A major mortgage industry trade group warned Tuesday that mortgage servicers will be stretched thin modifying the millions of loans contemplated by the Obama administration housing plan.

Mortgage servicers will have to manually process millions of credit reports, pay stubs and home appraisals to carry out loan modifications in accordance with the plan, Mortgage Bankers Association President John A. Courson wrote in a letter to Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan.

Mortgage servicers will also have to erect automated systems to screen applicants for program eligibility, he said.

"Neither the quantity of work required by the proposed refinance and loan modification plans or the time to implement them should be underestimated," Courson wrote. "MBA wants the government and borrowers to have realistic expectations of how quickly all of the loans eligible under the program can be identified and processed."

The Obama administration said its plan to stabilize the housing market, unveiled last week, could help as many as 7 million to 9 million homeowners. The plan would allow homeowners who owe more than 80% of the value of their homes to refinance into lower-interest mortgages. The government would also provide generous incentives for mortgage servicers to modify loans for certain at-risk borrowers, and pay up to $1,000 a year for five years to borrowers who stay current on their modified loans.

Lenders will have to reduce interest rates on mortgages such that borrowers' monthly payments are no greater than 38% of their income. Then, the government will partially fund further reductions in interest rates to bring the debt-to-income ratio down to 31%.

More details about the plan and borrower eligibility are scheduled for release on March 4.

In its letter to Geithner and Donovan, the mortgage bankers trade group enumerated several suggestions to improve the plan. It argued that the administration should expand eligibility for the refinancing program. Currently, only borrowers with loan-to-value ratios below 105% who have mortgages backed by Fannie Mae (FNM) and Freddie Mac (FRE) would qualify. The trade group wants the loan-to-value cap abolished and also wants the administration to help borrowers whose mortgages aren't backed by Fannie Mae and Freddie Mac to access current lower market rates.

The trade group also argued that the administration clarify that the largest loans backed by the government-sponsored enterprises should qualify for loan modifications.

It pushed for statutory changes included in legislation pending before the U.S. House aimed at easing the modification of mortgages insured by the Federal Housing Administration, the Veterans Administration and the Department of Agriculture.

Under the legislation, mortgage servicers would be allowed to assign loans intended for modification to the government in order to avoid the costs associated with buying loans already packaged into Ginnie Mae securities.

The government would also pay partial claims to investors in mortgages insured by those agencies that have been modified. The legislation could hit the House floor as soon as Thursday.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com