As the government debates ways to reduce the size of their involvement in the housing finance market, HUD announced the launch  of a $1 billion assistance program designed to offer interest free loans to borrowers who are at risk of foreclosure.

The program, called the Emergency Homeowners' Loan Program (EHLP) has been made available in 27 states and Puerto Rico. It offers interest free loans up to $50,000 to pay a portion of their monthly mortgage payments for up to two years.

"Through the Emergency Homeowners’ Loan Program the Obama Administration is continuing our strong commitment to help keep families in their homes during tough economic times," said HUD Secretary Shaun Donovan. "Working with our community partners across the nation through NeighborWorks® America, we are pleased to launch this program today in 27 states and Puerto Rico to help families keep their homes while looking for work or recovering from illness."

HUD expects the programs to help about 30,000 distressed borrowers with an average loan amount of $35,000. 

Considering that the majority of homeowners who have their mortgages modified redefault within a short period of time, adding additional debt to distressed homeowners, even at an interest free rate, may merely delay the inevitable and lead to significant losses of the $1 billion allocated to the program.