"This is a step in the right direction but falls short of what is needed to achieve widescale modifications of distressed mortgages," Bair said.

The plan, administered by the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association, could rescue 400,000 homeowners from foreclosure, the Treasury said.

Freddie Mac (NYSE:FRE) and Fannie Mae (NYSE:FNM) own or guarantee 58 percent of all U.S. single-family mortgages. But only 20 percent of those are in danger of foreclosure, CNNMoney reported Wednesday.

The plan mandates the companies track down delinquent homeowners. Those who participate would be offered mortgage payments of 38 percent of their monthly household income. Some payment on principle can be deferred and interest rates could be reduced to 3 percent for five years with increases scheduled until the rate reaches the original rate or the market rate, whichever is lower, CNNMoney said.

"Most foreclosures are happening on subprime loans that Fannie and Freddie don't control," said Eric Stein, senior vice president at the Center for Responsible Lending.

"More is still needed to address foreclosures on these mortgages," he said.