The Obama administration Wednesday unveiled key details of its housing market rescue plan that should enable mortgage servicers to start immediately cutting monthly payments for eligible borrowers.

The administration says the plan, which relies on $75 billion in incentives for borrowers, mortgage servicers and investors, will help right the housing market by providing more affordable loans for "responsible" homeowners at risk of foreclosure.

"There are going to be some people who don't qualify. There are going to be some people who qualify but don't succeed," a White House official said during a background briefing with reporters on the plan.

The Treasury Department on Wednesday confirmed many key features of the loan-modification program and released technical documents detailing how the loan modifications would work. The administration expects the program to reach up to 3 million to 4 million homeowners at risk of foreclosure. Under a separate program, the administration aims to help as many as 4 million to 5 million borrowers who have seen their home values plunge take advantage of current low mortgage rates by refinancing.

The administration will also soon unveil the details of a new optional program for mortgage servicers to offer partial payments to holders of second mortgages to extinguish the second liens, the White House official said.

The loan-modification plan is the most ambitious proposal yet to help stem the foreclosure crisis. Under the program, the government would pay mortgage servicers a $1,000 one-time fee to reduce borrowers' payments to 38% of their income for five years. The government would then match the cost of further interest-rate reductions or other measures intended to bring mortgage payments down to 31% of borrowers' income.

Interest rates can be reduced to as low as 2% under the program. After five years, mortgage servicers can begin to raise the rate, but only as high as the market rate prevailing at the time the loan was modified. "There's long-term affordability built into the plan," the White House official said.

The government would pay servicers up to $1,000 a year for up to three years if borrowers stay in the program. Meanwhile, borrowers would receive up to $1,000 annually for five years for staying current on the loan. In addition, the government would pay $1,500 to mortgage investors and $500 to servicers for modifying loans under the program guidelines that isn't delinquent.

The payments to servicers, investors and borrowers will kick in only after a loan modification survives a 90-day trial period, during which all foreclosure actions would be suspended temporarily, the Treasury said Wednesday.

The administration was largely silent on potential investor lawsuits against servicers that perform modifications, perhaps the biggest impediment to the program's success. Legislation to give mortgage servicers a safe harbor against such litigation is pending in the U.S. House. A White House official said the loan-modification program wouldn't override contracts with investors.

Though the program relies on incentives, it won't be voluntary for all mortgage servicers. In a joint statement, the Federal Reserve and other regulators said that financial firms that receive government funds in the future under the administration's bank-rescue program will be required to participate in the program.

In addition, the program will be an all-or-nothing proposition for participating mortgage servicers, who will be required to modify all eligible loans in their portfolios according to the program guidelines. The requirement is intended to ensure that servicers, lured by the incentives, don't dump just "the low-hanging fruit" into the program, a senior Treasury official said.

Still, mortgage servicers won't have to modify loans under the program where it is "explicitly prohibited by contract," according to a program document. Servicers are required to use "reasonable efforts to obtain waivers of limits on participation," the document said.

Borrowers must meet several eligibility requirements. The program will apply only to owner-occupied primary residences. Only first mortgages with an unpaid principal balance of up to $729,750 for a single-family home will qualify for modification. Mortgages must be originated on or before Jan. 1, 2009, to qualify for the program, which will accept eligible borrowers through the end of 2012.

In addition, borrowers must be screened for financial hardship. They will have to provide a written statement saying they don't have enough liquid assets to meet their mortgage payments. Borrowers wouldn't be required to liquidate retirement accounts to be eligible for the program, the White House official said.

Lenders will have to document current income, assets and expenses to verify that borrowers are struggling to meet their mortgage payments.

For borrowers deemed at risk of imminent default, lenders will apply a net present value test to determine whether the loan is worth modifying under the program. According to details of the test released by Treasury, mortgage servicers will have significant leeway in the assumptions they use for the test, including the discount rate. However, the rate will be capped at the Freddie Mac Primary Mortgage Market survey rate plus a spread of 2.5%.

In cases where loans fail the net present value test, mortgage insurers have agreed to pay partial claims in order to help the borrower avoid foreclosure, the Treasury said.

The plan's payments to borrowers have been criticized as unnecessary windfalls to homeowners who have seen their monthly payments cut. The payments are "designed as an extra incentive to have all the incentives, all the psychological help they need, to make the next payment," said a White House official, who noted they would go directly to reducing the outstanding principal balance on the loan.

Administration officials said details would be forthcoming on the plan to help extinguish second liens on homes. "We think we can develop a streamlined additional program that will help reduce debt overhang," a White House official said.

Treasury added that Freddie Mac (FRE) will audit compliance for the housing program.

-By Maya Jackson Randall and Jessica Holzer, Dow Jones Newswires; 202-862-9255; maya.jackson-randall@dowjones.com