Millions of struggling homeowners could benefit from a new deal agreed by the government and the mortgage industry.

Fannie Mae and Freddie Mac - the mortgage lenders controlled by the state - have agreed to modify the loans of those falling into arrears to prevent them from losing their homes.

Interest rates will be cut to ensure that borrowers are spending no more than 38 per cent of their income on mortgage repayments.

Some loans will be extended from 30 years to 40 years, therefore reducing the amount that is owed each month.

It is hoped that the deal will help to halt the rapid increase in foreclosures that has been witnessed in many parts of the country.

However, only those who are at least three months in arrears and who owe more than 90 percent of the value of their home will qualify.

Mortgage lenders repossessed 84,286 properties in October, according to the latest US Foreclosure Index from Foreclosures.com.

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