WASHINGTON AND LOS ANGELES — The Obama administration's plan for a housing rescue aids two groups of homeowners largely left out of previous efforts and aims to deny benefits to those who have been unwise or greedy, according to details released Wednesday.
The plan would greatly expand mortgage relief to those who have not missed payments and those whose homes are worth less than their mortgages.
What the program will not do, administration officials insisted, is reward those who dug themselves into a hole through ill-advised actions.
Nor will it provide much more help to those in high-priced areas, such as Los Angeles and Orange counties. It does reinstate last year's higher loan limits for refinanced or modified mortgages to as much as $729,750.
"The plan is not intended to prevent every foreclosure or help every homeowner," said a senior government official who briefed reporters on condition of anonymity. "It is targeted at responsible homeowners. It will do nothing for speculators or flippers."
Lenders and brokers said that reinstating higher caps for eligible loans would help certain borrowers whose mortgages were purchased or backed by Fannie Mae or Freddie Mac. Those quasi-government financing giants could deal only with loans up to certain limits, which vary by area according to median home prices.
The higher cap had expired at the end of December, reducing eligible loans to $625,500 in more-affluent regions such as Los Angeles. The higher limits the Obama stimulus plan reinstated last month expire at the end of this year.
"Basically, the invitation to the refinancing party has just been extended to a lot of people in Southern California," said Greg McBride, senior financial analyst at Bankrate.com.
It remains to be seen whether the program will fulfill the administration's broader hopes of helping 7 million to 9 million Americans get new mortgages and stem the tide of foreclosures that continue to erode the housing market.
At heart, the housing rescue plan remains voluntary for lenders, though any financial institution receiving government capital going forward will be required to take part.
The idea is not to prevent all foreclosures but to curb those the government deems unnecessary -- involving loans to responsible borrowers doing their best to stay in their home during rough economic times. In most cases, officials said, avoiding foreclosure not only helps families but also recoups more of a lender's investment.
"This plan will help make homeownership more affordable for 9 million American families and, in doing so, help to stop the damaging impact that declining home prices have on all Americans," said Housing and Urban Affairs Secretary Shaun Donovan.
The administration has dubbed the housing plan the Making Home Affordable initiative, and it has two main parts. One is aimed at certain "underwater" homeowners who want to refinance into a lower rate, and the other at borrowers facing financial hardship who are seeking a way to lower their monthly mortgage payments.
Both programs are limited to borrowers who live in their homes, owe no more than $729,750 and fully document their incomes.
The programs are effective immediately, though it may take some time for lenders and servicers to implement them.
"There are lots of borrowers who are significantly underwater in California [and other expensive areas] who will be able to get into sustainable mortgages under the program," said the senior official who briefed reporters on condition of anonymity.
Details of the eligibility requirements for both programs are posted on the government's economic recovery website at www.financialstability.gov.
The first part of the program, called Home Affordable Refinance, is aimed at homeowners whose property has lost value as housing prices have plummeted. It would be open only to borrowers with so-called conforming loans backed by Fannie Mae and Freddie Mac, and it would waive the usual conforming requirement that the borrower have 20% equity in the home.
The program would not reduce the principal of the loan, but it would allow the borrower to refinance that principal up to 105% of the current value. Usual fees would apply, though for many borrowers the procedures would be streamlined.
Interested borrowers would have to contact their loan servicers to determine whether their mortgages are held or guaranteed by Fannie Mae or Freddie Mac. Loans made with the support of other agencies, including the Federal Housing Administration, the Department of Veterans Affairs or the Department of Agriculture, are not eligible.
The second program, called Home Affordable Modification, is more complex and is aimed at borrowers whose mortgage payments have become unaffordable either because of a hardship such as job loss or illness or because the interest rate has been reset higher on an adjustable-rate mortgage.