WASHINGTON — The Obama administration on Wednesday expanded efforts to help Americans struggling with distressed mortgages refinance at lower interest rates, even if they owe up to 25 percent more than their homes are now worth.
The administration expanded eligibility for the refinancing portion of its ambitious Making Home Affordable plan after statistics showed it wasn't reaching enough of the homeowners it was designed to help — those who're "underwater," owing more than their homes are worth.
Analysts, however, said it still won't reach most of the people who need it most.
The initial effort, first announced on Feb. 18, was limited to homeowners who were no more than 5 percent underwater. If their homes were worth $200,000, they could owe no more than $210,000 — their loan-to-value ratio — to qualify for refinancing.
The bulk of homeowners who took advantage of the refinancing program had equity in their homes and didn't have loan-to-value ratios approaching 105 percent.
On Wednesday, administration officials announced in Las Vegas that homeowners with loan-to-value ratios of 125 percent can now participate. That means someone whose home is now worth $200,000 can qualify for refinancing even if the owner owes as much as $250,000 on the property.
"The president's Making Home Affordable plan is already helping far more families than any previous foreclosure initiative and with today's announcement we will extend its reach still further," HUD Secretary Shaun Donovan said.
In a statement, James Lockhart, the director of the Federal Housing Finance Agency, said the program "could assist many homeowners who otherwise would have difficulty refinancing due to declining house prices."
The FHFA oversees the government-controlled mortgage finance entities Fannie Mae and Freddie Mac, and participation in the Obama refinancing program is limited to homeowners whose mortgages are owned or backed by Fannie and Freddie.
"I think it will help, but the limitation I see in it is that it is basically limited to Freddie and Fannie loans. My assumption is the bulk of loans that are significantly upside-down probably aren't the Fannie and Freddie products, they're probably the other loans," said Rick Sharga, a senior vice president of RealtyTrac, in Irvine, Calif., which publishes data on foreclosures nationwide.
While industry experts see merit in the effort, they warn that it misses most of the homeowners whose homes have lost the most value.
"With all due respect, I think it's a great program for probably 45 states . . . it's not going to help us," said Mark Baker of Meridias Capital, a large mortgage originator in Las Vegas.
Nevada, California, Arizona and Florida have the largest number of problem loans and the steepest drops in home prices. Most of these loans weren't bought by Fannie and Freddie, experts said, but instead were sold by Wall Street firms into a secondary market where private investors hold pools of U.S. mortgages. The Obama refinance program doesn't take in these so-called "private label" mortgages.
Treasury and HUD representatives offered no estimate of how many of the underwater mortgages nationwide are owned or backed by Fannie and Freddie and thus qualify for government-assisted refinancing.
"The program is never going to be near as impactful as they thought it would be . . . The people who could stand to benefit from this scenario, their current loans are not owned by Fannie Mae and Freddie Mac," said Eric Gates, the head of the Maryland Association of Mortgage Brokers. "A lot of the people who purchased with little or no down payment or have exotic mortgages that they are looking to refinance out of — those loans are typically not Fannie and Freddie products."
The Obama administration has rolled out a number of other elements of Making Home Affordable, attacking different elements of the housing crisis with limited success. These efforts seek to entice lenders and investors in pools of mortgages to rework distressed mortgages to stem a record rate of foreclosures.
Wednesday's announcement could have an important spillover effect in the broader housing market, because it signals that the government wants lower lending rates — a pre-condition needed to entice homeowners to refinance.
"It tells us interest rates are going to stay low. What the government just said is we're going to have lower interest rates . . . and that is a huge positive," Baker said.
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