There's a $1.7 trillion sticking point in President Barack Obama's plan to prevent home foreclosures.

A central plank to the measures announced Wednesday are loan modifications, which ease the burden of mortgages largely through reducing interest rates.

The administration set aside $75 billion for this program, which enlists borrowers, lenders and the servicers who collect the monthly mortgage payments. But it says nothing about the investors who own these home loans in the form of tradeable bonds.

Approximately $1.7 trillion of home loans, according to Citigroup, have been packaged into these bonds, which aren't guaranteed by Fannie Mae (FNM) and Freddie Mac (FRE) - the two housing financing giants that will play a role in implementing the government's housing rescue plan.

To modify the loans, the investors need to be on board. Either they have to agree to sell the loans to the servicers or they have to agree to receive less income from the loans. To act without their consent could result in costly lawsuits.

And here's the rub. Price is an issue. The bondholders are likely to demand servicers pay face value for the loans, which are now worth far less.

The complicated nature of these securities continues to dog the government's efforts to fix the housing market. The Treasury Department's initiative announced last week to get many of these bonds backed by home loans off bank balance sheets also failed to provide sufficient details on how to price these securities.

To be sure, the current $75 billion loan-modification plan was a step up in terms of details from last week's program. The administration listed eligible borrowers, how the mortgage rates would be reduced, and incentives for lenders and borrowers who participate in the program.

But for market participants, it still lacked one crucial element.

"I was surprised there was no safe-harbor terms," said John Sim, a strategist with J.P. Morgan Chase.

He said such a safe-harbor clause would protect servicers, working on loan modifications with borrowers, from lawsuits and any claims from investors who own these bonds that are backed by home loans.

The government said it would create a set of guidelines to standardize the modification program, which will be announced on March 4. Market participants hope the guidelines will address the issue of investor claims.

Until those details are released, servicers are unlikely to modify any loans included in a bond, especially in light of a Greenwich Financial Services' lawsuit against Countrywide Financial filed in December. The fund sought $150 million in compensation since Countrywide changed terms on its mortgage loans.

-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com