The Obama administration has stepped up efforts to help homeowners refinance their mortgages, potentially bringing relief to millions of those who owe more than their homes are worth. It's an overdue step that should boost consumer spending, even if it may not avert a huge number of foreclosures. The latter problem requires more aggressive and effective loan modifications, which banks and investors have been reluctant to do — to their own detriment.
The collapse of the housing market has left an estimated 11 million Americans owing more on their mortgages than their homes are worth. Although about 70% of those "underwater" borrowers have loans with interest rates higher than are available today, their lack of collateral has prevented them from refinancing into new, more affordable loans.
On Monday, Fannie Mae, Freddie Mac and their regulator, the Federal Housing Finance Agency, announced a more ambitious refinancing program that could enable an additional 2 million underwater borrowers who are not in default to obtain new loans. Those refinancings will reduce the returns that Fannie, Freddie and other investors stood to receive from the loans, but that's the standard risk faced by those who buy mortgage-backed securities. More important, by cutting homeowners' debt payments, the refinancings should improve consumer confidence and increase spending, spurring the economy.