Eligibility expanded for home refinance program

The Obama administration eased eligibility rules Wednesday for its Home Affordable Refinance Program, lifting the maximum loan-to-value ratio to 125 percent from 105 percent.

The shift, which regulators had hinted was coming, is aimed at making refinancing available to more people whose homes are worth less than their mortgages.

HARP is open to homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, the mortgage finance giants now under government control. It covers first mortgages only.

The refinance program, launched this year, has gotten off to a slow start, in part because the maximum 105 percent loan-to-value ratio was too low to include many homes that have fallen sharply in value.

The new 125 percent maximum means eligible homeowners with a $375,000 mortgage can refinance if their house is worth at least $300,000. But the borrower still must be able to afford the new loan. Income requirements are an increasing problem as unemployment soars and many workers are dealt pay cuts.

Treasury Secretary Timothy F. Geithner said the move to raise the loan-to-value limit was “a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.”

But refinance activity in general remains vexed by the jump in mortgage rates from their generational lows in April. Refinance applications to lenders have tumbled since mid-May as rates have surged, according to Mortgage Bankers Association data released Wednesday. Despite a down-tick in rates in the past two weeks, refinance activity hasn’t rebounded.