WASHINGTON — The Obama administration will announce today a broad new initiative to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.
The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which has put millions of Americans at risk of losing their homes. But the programs are likely to spur protests among those who have kept up their payments and are not in trouble.
A major element of the new program, according to several sources who spoke on the condition of anonymity, will be to encourage lenders to write down the value of loans for borrowers in modification programs. Until now, modification programs have focused on lowering interest rates.
Another major element will involve the government, through the Federal Housing Administration, refinancing loans from borrowers whose home value has sunk below what they owe on it. More than 11 million homeowners are in this position, known as being underwater. That aspect of the plan would apply even to borrowers who have not fallen behind in their mortgage payments.
Investors who own the loans would have to swallow losses but would probably be assured of getting more in the long run than if the borrowers went into foreclosure. The FHA would insure the new loans against the risk of default.
Many details of the administration's plan remained unclear Thursday night, including the precise scope of the new programs and the number of homeowners likely to qualify.
This much was clear, however: The plan could put taxpayers at increased risk. If many additional borrowers move into FHA loans, a new downturn in the housing market could send that government agency into the red.
The FHA has already expanded its mortgage-guarantee program substantially in the last three years as the housing crisis deepened, insuring more than 6 million borrowers. Sources said the agency would receive $14 billion in funds from the Troubled Asset Relief Program, cash it could dangle in front of financial institutions as incentives to participate in the new program.
A third element of the White House's housing program will require lenders to offer unemployed borrowers a reduction in their payments for a minimum of three months.
An administration official declined to speak on the record about the new programs but said they would "better assist responsible homeowners who have been affected by the economic crisis through no fault of their own."
The plan would essentially supplant the government's earlier mortgage modification plan, announced a year ago with great fanfare. It has resulted in fewer than 200,000 people getting permanent new loans. As many as 7 million borrowers are seriously delinquent on their loans and at risk of foreclosure.
The news was greeted with cautious enthusiasm by groups that have tracked the foreclosure crisis and tried to assist communities and underwater homebuyers.
"It sounds really good, and I'm not used to saying that," said Kevin Stein of the California Reinvestment Coalition in San Francisco.
He said "the two main weaknesses" of the existing federal Home Affordable Modification Program were that it didn't reduce the mortgages of underwater homeowners, and didn't help borrowers who were underemployed or unemployed and would have difficulty qualifying for a loan modification.
"It seems they have taken these issues to heart," Stein said. "It's unclear how many people will qualify — that's the one hesitation. We're not sure how broadly these initiatives will reach."
Martin Eichner, with Project Sentinel in Sunnyvale, said the proposals sound good but he would like to see the details.
"It has to help significant numbers of people, and there has to be enforcement," Eichner said.
"These plans always look great in the first news release, but we've often been disappointed in the performance. To the extent that lenders write down principal balances, that would be a significant improvement," he said.
Eichner said the home affordable effort also needs an enforcement mechanism. "Without any real consequences, day to day we see lenders ignoring what we think are pretty clear rules under the current making home affordable program."
While the number of foreclosure-related filings is beginning to flatten or decline, the number of borrowers who are seriously distressed is rising. In the fourth quarter, the number of households at least 90 days past due on their mortgages swelled by 270,000, according to a report issued Thursday by the Office of the Comptroller of the Currency.
"The government is seeking to persuade people to stay in their homes by aligning the mortgage debt with the asset value, which is the only viable path to real housing stability," said one person who was briefed on the government's plans. Several people who described the plans would speak only on condition of anonymity, since they had not been authorized to disclose details ahead of a White House briefing scheduled for this morning.
Staff writer Pete Carey contributed to this story.