The federal government and Citigroup followed the lead of other private lenders on Tuesday with plans to keep thousands of homeowners from defaulting on their mortgages and prevent further deterioration in the housing market and economy.

Citigroup said it will modify mortgages for troubled borrowers and cut their payments by temporarily reducing loan balances or cutting interest rates to as low as 1 percent for up to four years. The plan could help about 136,000 customers.

Citigroup said it will also stop foreclosures on troubled borrowers who live in their own homes and whose income would allow them to make the reduced mortgage payments. The bank also expects to work with another 500,000 homeowners who are falling behind in their payments. The bank will try to keep them from defaulting.

The revisions will cost Citigroup in the short term, but the plan could prevent greater losses from foreclosures and defaults on higher mortgage payments.

JPMorgan Chase, Bank of America and HSBC have also implemented mortgage-modification plans this year.

Also Tuesday, the federal government disclosed plans to help hundreds of thousands of homeowners whose mortgages were once held by Fannie Mae and Freddie Mac but are now held by the Federal Housing Finance Agency, which seized control of the two firms earlier this year.

Borrowers who are at least three months behind on their mortgage payments and owe 90 percent or more of their home's value could see their interest rate lowered to reduce payments so they are not spending more than 38 percent of their income.

Other options would be to extend their loans from 30 years to 40 years or defer some of the principal interest-free.

The housing market has played a central role in the current economic crisis. It is essential to prevent the market from deteriorating further with potentially hundreds of thousands of foreclosures which would drive down housing prices even further. Empty houses can also lead to blight in communities, loss of tax revenue and lowering of property values.

Lenders risk a loss by rewriting the terms of the mortgages but the loss could be even greater if they cannot recover the value of a debt after they foreclose.