* Regulator widens government refinance program
* Scraps cap on loan-to-value ratios on eligible loans
* FHFA looks for ways to encourage lenders to participate
By Margaret Chadbourn
WASHINGTON, Oct 24 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.
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.
With political gridlock blocking legislation addressing the
housing crisis, the administration had urged the FHFA to widen
HARP to more borrowers. The regulator had moved cautiously,
wary of piling too much risk on Fannie Mae and Freddie Mac.
"This is an appropriate balancing of risk that's being
borne by Fannie and Freddie, and hence the American taxpayer,"
FHFA's acting director, Edward DeMarco, said in a conference
call with reporters. "This will make HARP more available."
In September 2008, the U.S. government seized Fannie Mae
and Freddie Mac, the two largest sources of U.S. mortgage
financing, as losses on loans they backed spiraled. The two
firms have so far received $141 billion in taxpayer bailouts.
After meeting with DeMarco earlier this month, one lawmaker
said the expanded program could help as many as 600,000 to 1
DeMarco and Obama administration officials said there was
no way to forecast exactly how many borrowers could benefit,
although the FHFA said it could double the number helped by the
end of 2013. Previously, the program was due to expire in
There were some signs the announcement was having an
Las Vegas-based mortgage originator Ben Petkewich said he
had five clients who might qualify for the relaxed terms --
four paying 6 percent a year and another paying more than 8
"I got two phone calls this morning and have pulled three
files," said Petkewich who runs The Mortgage Outlet. "I'm a
one-person shop. That's a significant amount of business for me
to look into."
The state of Nevada has the highest foreclosure rate in the
The White House has been criticized for over-selling
earlier efforts to help housing. When HARP was unveiled in
March 2009, it predicted it would help 5 million borrowers, but
so far fewer than 895,000 have refinanced through the program.
Housing Secretary Shaun Donovan said the overhaul was "only
one piece of a broader strategy to help the housing market." He
said the next step would be to find a way to rent, sell or
dispose of foreclosed homes that are weighing on already
With housing impeding a broader economic recovery, some
Federal Reserve officials have said the central bank should
consider buying mortgage debt to drive down borrowing costs.
To encourage banks to participate in the revamped program,
FHFA moved to protect lenders from having to buy back loans if
underwriting problems are later found. "Of all the barriers,
this may be the most significant," said Gene Sperling, director
of the White House National Economic Council.
In addition, banks will only have to verify that borrowers
have made their last six mortgage payments and, in most cases,
they will not need to conduct an appraisal.
FHFA said Fannie Mae and Freddie Mac will also eliminate
certain fees for borrowers who refinance into shorter-duration
loans, in a bid to spur homeowners to pay down the amount they
owe more quickly.
Morgan Stanley's Rao said while the changes were helpful,
they were unlikely to lead to a "wave" of refinancing.
Many economists have argued bolder steps are needed given
the weight housing is placing on the recovery.
Former U.S. Treasury Secretary Lawrence Summers, in a
Reuters column, said what is needed are write-downs on loan
principal and mass sales of foreclosed homes to investors for
"With constructive approaches by independent regulators,
far better policies could be in place six months from now," he
wrote. "There is nothing else on the feasible political horizon
that can make as a large a difference in driving American