The housing initiative is designed to help borrowers refinance, and provides incentive payments to mortgage lenders, specifically addressing homeowners with negative equities - those paying mortgages that exceed the actual value of their homes.

However US stocks on Wednesday closed flat despite the US president's announcement, with the Dow Jones Industrial Average edging up only 3.03 points, or 0.04 percent, to 7,555.63 points.

Quick impact

Timothy Geithner, the US treasury secretary, told reporters he expected the plan to work quickly to help the housing market, and that it would bolster efforts to restore the financial system to good health. 

The stimulus plan

 Plan is worth $787bn
$287bn set aside for tax breaks
 $500bn allocated for spending, of which:
 $120bn will go towards roads, transport and broadband infrastructure
 $60bn for healthcare and medical research
 $6bn for renewable energy loans

John Terret, Al Jazeera's correspondent in New York, said: "The key is that this is one of four strands that the Obama administration is trying to push through to get the economy moving again.

"One is the giant stimulus package, then the homes package today, the auto-industry bailout and the bank bailout which is currently being worked on."

An additional $100bn could be made available to homeowners by Fannie Mae and Freddie Mac - two mortgage companies bailed-out by the government at the height of the economic downturn last year - to absorb more home loans and spur fresh lending.

Washington may also directly inject a further $100bn into each of the mortgage giants, protecting them against losses as they expand their massive reach into the housing market.

Between four and five million Americans could benefit from the additional $200bn.

The US is experiencing its worst economic crisis in decades, with tight credit, ailing banks and its highest unemployment rate in 16 years.

Slipping industry

As Obama's administration announced details on the housing plan, the US Commerce Department reported that new home construction in the US fell16.8 per cent from December to a record annual rate of 466,000 homes last month.

The figure marks the fourth month in a row that housing construction has set a new low in 50 years of the department's recordkeeping.

Also on Wednesday, the US Federal Reserve revealed that the US economy had slumped further than expected.

In video

Foreclosures leave US tenants in the lurch

Production from the nation's biggest factories, mines and utilities fell 1.8 per cent last month. Economists had only predicted a 1.5 per cent decline, the Fed reported on Wednesday.

The report came as US car makers General Motors and Chrysler requested a further $22bn in government loans to save them from bankruptcy.

Obama signed a $787bn American Recovery and Reinvestment Bill into act on Tuesday, saying the package, a mixture of tax cuts and spending for infrastructure projects, would lay the groundwork for "real and lasting change for generations to come".

Roughly one-third of the stimulus funds will be spent on tax cuts, totalling $286bn, in an effort to boost consumer spending, a vital engine of the world's largest economy.

Despite the plan, financial analysts say the US economy will remain feeble throughout 2009. Some economists predict that the US budget deficit for 2009 will hit $1.6 trillion, including the stimulus spending - about three times last year's shortfall.