Fannie, Freddie ease terms for mortgage refinance

By Patrick Rucker

WASHINGTON (Reuters) - The Obama administration on Wednesday expanded its foreclosure prevention efforts to help a greater number of underwater homeowners refinance their mortgages.

Under the widened program, mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) will refinance up to 125 percent of a home's value, lifting the current 105 percent loan-to-value cap.

"By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly," Treasury Secretary Timothy Geithner said in a statement.

The collapse in housing prices has caused more and more homeowners to be "underwater," with the money they owe on their mortgage outstripping the value of their home.

Home values in many markets have sunk by 18 percent in the last 12 months, according to Standard & Poor's/Case Shiller home price index. The decline in prices has pushed an increasing number of homeowners underwater.

The revamped refinance program expands a housing rescue plan first outlined by the Treasury Department in February that was meant to lower the costs of homeownership for borrowers who are making timely payments.

Before a five-year housing boom ended in 2006, Fannie Mae and Freddie Mac would finance no more than 80 percent of a home's value. Since the companies were effectively nationalized in September, officials have pushed the firms to cover mortgages with higher loan-to-value ratios.

Rates on 30-year mortgages lingered at record-lows in April and May as the Federal Reserve started to fulfill its promise to buy $1.45 trillion in mortgage-related debt.