The Treasury Department is considering giving banks and investors billions of dollars in fresh incentives to modify troubled mortgages and save homeowners from foreclosure, sources familiar with official deliberations said.

Under one scenario, investors in second liens would receive a cash payment if they agree to ease the terms of troubled loans and accept a smaller return on their mortgage investment, the sources said.

During the height of the housing boom, some borrowers were able to buy a home with no downpayment by adding a second lien and many of those loans are now failing as the economy and housing market struggle.

Officials also envision giving fresh subsidies to encourage 'short sales' in which the lender accepts a payment that does not cover the entire loan amount, according to the sources, who requested anonymity because they are not authorized to disclose details.

Fannie Mae and Freddie Mac, the mortgage finance companies, would administer the new program to resolve problems with second-liens under one plan being considered, they said.

A senior administration official declined to comment on Tuesday, but said the Treasury expected to unveil further details of its homeowner-aid program soon.

The official said the Treasury Department is also considering ways it could resolve problems in the mortgage insurance industry battered by mounting foreclosure losses.

We are aware of the difficulties in the industry and we are analyzing different options to deal with those difficulties, the official said.

(By Patrick Rucker and David Lawder; Editing by Neil Stempleman)

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