Top federal housing officials argued the Obama administration's housing plan would help millions of Americans avoid foreclosure before a U.S. House panel.

"With the president's comprehensive strategy to rebuild the housing market and revive the economy, many of these homeowners will have a fighting chance to stave off foreclosure," Department of Housing and Urban Development Director for Single Family Asset Management Vance T. Morris told the House Financial Services Committee's Subpanel on Housing Thursday.

The plan is "a major step forward in reducing preventable foreclosures and stabilizing the housing market," Federal Housing Finance Agency Chief Economist Patrick Lawler said.

The administration is facing intense pressure to stabilize the housing market, as independent analysts expect the foreclusure crisis to deepen with rising unemployment. More than 8 million homes will enter foreclosure over the next four years, according to Credit Suisse (CS).

The Obama administration's plan, unveiled earlier this month, aims to help up to 9 million people stay in their homes. Under one program, underwater homeowners will be allowed to more easily refinance into lower-interest rate mortgages. Another program would provide $75 billion in incentives to borrowers, mortgage servicers and investors to complete loan modifications, which conform with certain administration guidelines.

Aside from Morris and Lawler, housing experts and representatives from think tanks and advocacy groups testified on the merits of the plan. Some criticized the plan as being too generous to borrowers and lenders, while others said the program was not ambitious enough.

Fannie Mae (FNM) and Freddie Mac (FRE), which own or guarantee more than half of outstanding U.S. mortgages, last fall unveiled a "streamlined modification program" which sought to lower monthly mortgage payments down to 38% of borrower income. FHFA, which oversees Fannie and Freddie, hoped that the program guidelines would be widely adopted by private-sector mortgages. But FHFA officials now acknowledge the plan has had limited impact.

"It is clear that the program needs to be more aggressive to reach more troubled borrowers," Lawler said. He cited two problems with the approach, saying it targets only borrowers who were already 90 days past-due on their mortgages and that it does not lower mortgage payments enough for strapped borrowers.

Both problems will would be rectified by the Obama housing plan, Lawler argued, because it would help borrowers who are still current on their loans, but at-risk of default. It also provides government funds to lower mortgage payments to 31% of borrower income, while Fannie and Freddie sought a target debt-to-income ratio of 38%.

Fannie and Freddie have key roles in implementing the Obama housing plan. The government-controlled mortgage companies will monitor servicers' compliance with the program guidelines. In addition, they will absorb all the costs of any modifications of mortgages the companies own or guarantee. Fannie Mae will act as paying agent, disbursing the financial incentives to servicers who have modified loans.

As administrators of the modification program, Fannie and Freddie will soon issue new standards to servicers of so-called private-label securities, or PLS, which are backed by mortgages the enterprises don't own or guarantee. The new standards will help get around a major obstacle to loan modifications - agreements that bind servicers to modify loans in these securities only if they follow industry standards, Lawler argued.

Fannie and Freddie have taken steps to beef up or transfer staff as well as prepare their systems, erect firewalls and in order to perform their new roles, Lawler said. FHFA will create a special team of trained examiners to monitor the program, analyze any data and detect fraud.

The loan modification program relies on a net present value test, among other criteria, to determine which borrowers are eligible. It is unlikely that many homeowners who have lost their jobs will qualify for a loan modification. Borrower advocates have been asking what options the administration will provide for such borrowers.

HUD's Morris addressed that concern in his testimony, saying the Treasury would soon unveil a plan to help borrowers ineligible for a government-assisted loan modification move to more affordable housing. The plan will include borrower and servicer incentives to complete short sales and deeds in lieu of foreclosure, so that foreclosure can be avoided. There will be the option of transferring the property to nonprofit housing agencies, Morris said.

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