New U.S. mortgage plan seen in a few weeks

(Reuters) - The government could unveil a plan in a few weeks to help up to one million struggling borrowers refinance their mortgages at lower rates.

Anxious to do more to help the depressed housing market, Treasury Secretary Timothy Geithner told lawmakers on Thursday he was hopeful the federal housing regulator would soon sign on to a new plan to help homeowners take advantage of low interest rates.

Separately, a Democratic lawmaker said the regulator is considering rule changes that could make mortgage refinancing more accessible for as many as 600,000 to one million troubled borrowers, although the agency declined to confirm that figure.

"We are very supportive of those reforms. We think that will make a big difference. They are like a tax cut," Geithner told a congressional committee on Thursday.
"We are hopeful that they will be able to lay out some clarity to the broader markets and to homeowners in next few weeks," he said.
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, is working with the Obama administration to find ways to reduce "frictions" in a two-year-old program to help borrowers refinance their loans.

But it has not publicly committed to allowing the two government controlled mortgage finance firms -- the two biggest sources of U.S. housing finance -- to play a larger role in helping borrowers who owe more than their homes are worth.

The agency's position has frustrated the Obama administration and Democratic lawmakers who are trying to find ways to revive a housing market that is hurting the country's economic recovery, and potentially imperiling President Barack Obama's hopes for re-election.

The administration and congressional Democrats want the FHFA to agree to changes to allow an existing government program -- the Home Affordable Refinance Program, or HARP -- help more borrowers refinance at current record low rates.

Representative Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee, led 16 other Democrats in an hour-long meeting with the head of the FHFA on Thursday afternoon to press for action.
"I assured them that the FHFA is working hard with other participants to enhance" an existing program designed to help struggling borrowers, the agency's acting director, Edward DeMarco, said in a statement following the meeting.
"As we are still working on these program enhancements, it is premature to estimate how many borrowers will refinance as a result of these efforts," he said.

KEEPING THE PRESSURE ON HARP allows homeowners to refinance government-backed mortgages, but the high upfront costs and lender reluctance to modify loans has become a deterrent.

Only about 838,000 borrowers have refinanced their loans under HARP, and if the revised program helped an additional one million borrowers, it would still fall far short of the administration's initial expectations of helping 4 million to 5 million homeowners.

FHFA may decide to allow borrowers with loans worth more than 125 percent of the value of their homes refinance, according to congressional staff sitting in on the meeting between DeMarco and Democrats. Currently, no mortgages with such a high loan-to-value ratio are eligible for the program.

Other sticking points that FHFA is aiming to eliminate, according to these aides, are ways to address the high fees associated with refinancing and to clean up the appraisal process. The FHFA will also examine representations and warranties contained within pooling and servicing agreements to see if changes are needed, they said.
All the government's programs to keep people in their homes have underperformed, angering Republicans who contend they are a waste of taxpayer money.
But Democrats are upset that only a fraction of the $50 billion set aside to help homeowners from the government's $700 billion bank bailout fund has been spent.

"It is true that we have spent a very small fraction of the money authorized under the housing programs and that is because the number of people that are eligible for those programs are a fraction of those that we thought would be eligible," Geithner told lawmakers. "We have tried to reach as many as we can and we're going keep doing it."

Geithner also said the administration was in the process of designing legislative proposals to shrink the government's role in the housing market but he would not provide a timeline.
In February, the administration unveiled three options to overhaul the mortgage market that ranged from privatizing the housing finance system to limiting government-guaranteed mortgages to low and moderate income borrowers.
"I don't know what will be possible in terms of legislating in the next 18 months or so. We would like to get that process moving," he said.