The federal government will "step up the pressure" on the lending industry to fix America’s mortgage mess and keep fewer people from losing their homes, the chairman of the Federal Deposit Insurance Corp. said Thursday during a speech to businessmen in Pittsburgh.

"This is deadly serious," said Sheila Bair. "Foreclosures are too high in Pittsburgh and around the country."

The FDIC chairman said mortgage lenders should modify unaffordable, subprime home loan rates or loan amounts if borrowers are "reasonably current" on their mortgage payments.

"If that's not happening, I want to know about it," she told more than 100 community-development and mortgage officials at an event sponsored by the Pittsburgh Community Reinvestment Group and First Commonwealth Bank, based in Indiana, Pa. "It's always better for everyone to modify the loan than to foreclose. It makes economic sense."

The FDIC and other federal bank regulators recently reached agreements with the biggest mortgage-service companies to freeze for at least five years mortgage rates that are due to ratchet upward, said Bair. Such adjustable-rate mortgages can, after three years, jump from eight percent or less to more than 11 percent.

Homeowners are likely to be plagued by mortgages whose rates will jump upward "well into 2009," she said. "Some borrowers knew what they were doing (when they took such loans). But that's not the majority. Most are honest, working-class families that have been in their homes many years."

The FDIC and other bank regulators can pressure, but not force, mortgage companies to modify loans, she said. Only five percent of U.S. mortgages cannot legally be modified by the borrower and the lender, she added.

A 2007 law enables loan servicers to lower the principle amount of a mortgage without the borrower paying more in taxes. Tax law previously said the lower liability represented a gain for the borrower that was taxable.

"If you can refinance, please get into a 30-year, fixed-rate loan," said Bair. She urged homeowners facing foreclosure to approach community banks to refinance their loans because most of them may be in a better position to offer competitive deals.

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