U.S. homeowners who owe more than their properties are worth got new help on Monday with the government's expansion of a refinancing program in a step that could help up to 1 million borrowers.
The regulator of mortgage finance giants Fannie Mae and Freddie Mac eased the terms of a program that helps so-called underwater borrowers who have made payments on time but have been unable to refinance.
"These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again," President Barack Obama said in remarks to the press and a handful of neighbors standing outside of a house in Las Vegas, where he had met with a family that benefited from his housing programs.
The Nevada city was hard hit by the foreclosure crisis.
The overhaul, which would only help a fraction of the country's 11 million underwater borrowers, is the latest government effort to breathe life into the crippled U.S. housing market.
Officials have been frustrated that numerous attempts to bolster the sector and help borrowers have had little success.
The Federal Housing Finance Agency said it was scrapping a cap that prohibited borrowers whose mortgages exceeded 125 percent of their property's value from refinancing loans backed by Fannie Mae and Freddie Mac under the government's Home Affordable Refinance Program (HARP).
It also took steps to coax homeowners into shorter-term loans and encourage more banks to participate in the program.
The Obama administration sees lowering mortgage payments as a way to free up cash for other spending that could help support the economy's tepid recovery.
House Financial Services Committee Chairman Spencer Bachus was critical of the administration's move, saying it would be a new burden for taxpayers.
"It has the added negative effect of transferring consequences, liabilities, and risks from the financial institutions which entered into loans that are now underwater ultimately to taxpayers," Bachus said in a statement.
The FHFA said it wanted to focus on loans made between 2004-08, when borrowers typically locked into rates above 5 percent. Currently, 30-year fixed mortgage rates are hovering just over 4 percent.
"Such modifications are no panacea, but they would move us in the right direction for housing-related stimulus for the economy," said Janaki Rao, vice president for mortgage research at Morgan Stanley in New York.
The White House expects homeowners refinancing under the program to save as much as $2,500 per household each year.
Investors in mortgage-backed securities, who had anticipated a revamping of the program, were surprised at the scope of the changes, and prices for housing debt issued by Fannie Mae and Freddie Mac dropped sharply.
