President Obama's foreclosure prevention plan, to be announced Wednesday in Phoenix, will help some struggling homeowners by providing them with direct government subsidies of interest payments, among a menu of measures, financial industry sources said Tuesday.

"The interest rate buydown program [is] emerging as a central component of the administration's battle plan to stabilize the housing market," said former HUD official Howard Glaser, of the Glaser Group in Washington D.C. 

He said the government could require mortgage lenders and private mortgage investors to match any federal mortgage interest subsidies. But the matches could be less costly to them than foreclosures, sources said.

Despite the fanfare around the announcement, sources said applicants for assistance will have to meet tough government guidelines to receive it. The standards are intended to discourage financially-healthier homeowners from purposely withholding mortgage payments to try to qualify for government help.

The administration's plan will assist the people most in need, a source told Fox Business. But some families in danger of losing their homes -- such as families in which one spouse has lost a job, thus cutting the family's income significantly -- will not be able to qualify because they just won't earn enough income to pay even lower mortgage payments, sources said.

Sources were waiting for details of the plan to determine if it would provide enough incentives for lenders and private investors who hold billions in untraditional mortgages -- so-called subprime, Alt-A and Option ARM loans -- to participate in the program. 

Sources said that even with the new plan, private mortgage investors and mortgage servicers are likely to seek Washington's support for additional steps, such as changes in federal mortgage law and certain accounting rules, to make it more attractive for hedge funds, investment funds and other private holders to modify mortgages.

"Part of what we may have to do is to make some changes in the law that make it easier for the servicers -- the people who take your check every day and are managing these portfolio of mortgages on behalf of a bunch of people who own bits and pieces of the mortgage -- to make it easier for them to engage in these negotiations in an efficient way," the president said at a town hall meeting in Florida last week. "There are a couple of wrinkles in order for us to accomplish this."

For families that do qualify for mortgage modifications, the cornerstone of the plan will be government subsidies on interest charges on their loans, sources said. The subsidies will be paid from up to $50 billion of funds in the Troubled Asset Relief Program, or TARP.

Glaser provided this example of how the program could work-and how it could be cheaper for the government than other foreclosure prevention proposals: 

For a $250,000 mortgage at 7.5% interest, the borrower is currently making a payment of $1,750 per month. If the rate is bought down to 5%, the new payment would be $1,350 per month -- a savings of $400 per month. The cost to the federal government, assuming a 50% match by the servicer: $200. For $1 million, the federal government could reduce the rate for 50,000 borrowers. By comparison, the same $1 million might purchase a handful of mortgages, or guarantee a few hundred.

Other remedies in the plan could include incentives for lenders and investors to reduce the principal on a mortgage -- though homeowners could be required to repay the reduction or interest rate subsidies, if that is the form of assistance -- at the end of the term of the loan or when they sell their home, one source familiar with the plan said. In theory, the back-end payments would be covered by a rise in the homes value over time.

"The borrower is going to have to probably, if they get some assistance, agree to give up some equity once housing prices recover, so that both sides are giving a little bit," the president said at the town hall meeting in Florida last week. "But you avert the foreclosure."

Regardless of the options, the goal of the plan would be to make mortgages more affordable for qualifying homeowners. The plan would seek to cut monthly mortgage payments to no more than 31% of a familys pretax income, sources said.

"We must stem the spread of foreclosures and falling home values for all Americans and do everything we can to help responsible homeowners stay in their homes," the president said Tuesday in Denver, where he signed the new $787 billion economic stimulus plan.

To pave the way for more mortgage modifications, the administration will also announce a new national template for restructuring them, sources said. The template will provide a formula for modifying mortgages held by Fannie Mae, Freddie Mac and other government entities, as well as for lenders and private mortgage investors that may adopt it.

Sources said that in announcing the plan, the administration could also address:

--modifying mortgages for homeowners with loans that exceed the current market value of the property (underwater loans).

--proposals in Congress to change bankruptcy laws to allow judges to modify mortgages in court.

--preventing re-defaults on mortgages even after they are restructured to cut monthly payments-to date, nearly half of all struggling homeowners who nave received mortgage modifications from their lenders have fallen back into the foreclosure process, according to government reports.

Administration spokespersons did not respond to request for comment.