homeowner assistance program is expanded

The Obama administration, seeking to help more homeowners lower their interest rates and shed mortgage debt, will relax the rules on a federal loan-modification program and triple its incentives to banks.

The revised Home Affordable Modification Program, or HAMP, also would pay Fannie Mae and Freddie Mac to forgive debt on homes that have lost value. The government-owned companies, citing cost, don’t reduce principal, a policy that has limited HAMP’s reach because they own or guarantee nearly half of U.S. home loans. About 900,000 borrowers have successfully used the lifeline to refinance, fewer than the 4 million borrowers HAMP — which pays mortgage servicers and investors for successfully modifying loans — was expected to reach.

Friday’s program changes are separate from a new refinancing plan that President Barack Obama promised to deliver in his State of the Union speech Tuesday.

Whether Fannie Mae and Freddie Mac accept the administration offer is up to Edward DeMarco, acting director of the Federal Housing Finance Agency, which is charged with minimizing losses to the companies and to taxpayers. DeMarco said he would analyze the potential costs and benefits of participating in HAMP’s principal write-down effort.

The HAMP expansion, called HAMP Tier 2, triples incentives paid to banks that reduce mortgage principal, to a maximum of 63 cents for every dollar of debt forgiven. Investors who rent out their properties would be eligible to refinance under the new rules. The deadline for applying for a HAMP loan modification is extended for a year, to the end of 2013.