NEW YORK (CNNMoney.com) — The Obama administration is widening its mortgage refinancing program to allow more borrowers hit hard by falling home prices to take part.
Borrowers whose loans are now worth up to 125% of their home’s value are now eligible to refinance their homes under the Obama foreclosure prevention plan announced in February. Previously, the limit was 105%.
The move acknowledges that home prices in many areas have fallen so far that many people were shut out of the program. Some 67% of homeowners in Las Vegas — one of the hardest hit areas where Housing Secretary Shaun Donovan announced the expansion Wednesday — owe more than their homes are worth.
“The president’s Making Home Affordable plan is already helping far more than any previous foreclosure initiative and with today’s announcement we will extend its reach still further,” said Donovan.
Some 20,000 loans have been refinanced so far, according to the Treasury Department.
The initiative waives the requirement that homeowners have at least 20% equity in their home, allowing to take advantage of today’s lower rates. Homeowners must still meet other criteria, including being current on their payments and having loans that are owned or backed by Fannie Mae or Freddie Mac.
The program, however, has been slow to ramp up. Borrowers have complained that banks are not approving their applications, and a recent uptick in mortgage prices has blunted the plan’s benefit.
The Mortgage Bankers Association last week slashed its 2009 forecast of originations because fewer refinancings were being done than they originally expected. The group said only 13,000 were done in the three months after the plan’s launch.
The administration has projected that 4 million to 5 million mortgage borrowers would be helped. A Treasury official Tuesday said that the figure applied to those who would be eligible, not necessarily those who would participate.
A second part of the program lets eligible borrowers who are in default — or at risk — lower their monthly payments to no more than 31% of their pre-tax income. This can help those who are not making as much at their jobs or who have monthly payments they can’t handle. Homeowners, servicers and mortgage investors can receive incentives to entice them to participate in the program.
By Tami Luhby, CNNMoney.com senior writer