WASHINGTON (Reuters) - The Obama administration on Friday said it was expanding its main foreclosure prevention program and pushing to open it up to loans backed by mortgage giants Fannie Mae and Freddie Mac.
In a joint announcement, the U.S. Treasury and Housing and Urban Development departments proposed using money from the Home Affordable Modification Program to provide incentives for Fannie Mae and Freddie Mac to reduce loan principal.
Currently, the $50 billion HAMP program only covers costs for reducing principal on bank-held loans.
The action puts pressure on the two government-sponsored enterprises, or GSEs, and their regulator to do more for borrowers who have been hurt by declining home values.
The administration also said it was extending the life of the program for one additional year through 2013 and would try to reach some borrowers who had been shut out of the program because their debt burden is so much greater than the value of their homes.
For the proposal on principal writedowns to work, Fannie Mae and Freddie Mac's regulator, the Federal Housing Finance Agency, would need to first sign off.
However, FHFA Acting Director Edward DeMarco has said allowing for principal reduction on so-called GSE loans would undercut his mandate to protect the taxpayers who have bailed out the two companies with $169 billion.
"To encourage the GSEs to offer this assistance to its underwater borrowers, Treasury has notified the GSE's regulator, FHFA, that it will pay principal reduction incentives to Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification," Treasury Assistant Secretary Timothy Massad said in a statement.
President Barack Obama said earlier this week in his State of the Union address that he planned to send legislation to Congress as soon as next week aimed at helping all homeowners take advantage of record-low borrowing costs.
So far, the administration's series of mortgage relief programs that were introduced in 2009 have fallen far short of expectations.
When the administration launched HAMP in 2009, it expected as many as 4 million loans would be modified. So far, only about 900,000 households have won permanent mortgage modifications. The administration says those modifications have provided savings of about $500 every month for those borrowers.
The HAMP program, which draws from the Treasury Department's financial bailout fund, pays mortgage servicers to rewrite loan terms to reduce monthly payments.
The administration did not specify how much it would pay Fannie and Freddie to participate in HAMP.
(Reporting By Margaret Chadbourn; Editing by Andrea Ricci)