The federal government’s expansion of a mortgage refinancing program could reduce the monthly payments of up to one million homeowners, but analysts said the modest scope of the plan meant it would probably do little to heal the housing market or help the broader economy.
The effort, built on sweeping voluntary agreements with the mortgage industry to let people refinance even if their homes have declined in value, reflects a new White House emphasis on economic measures that do not require Congress to overcome its bitter partisan divisions.
It also maintains a choice President Obama made in the early days of his administration to focus on reducing monthly payments rather than on the amounts that borrowers owe, the latter being what a growing number of liberal and conservative economists consider necessary to resolve the problem.
Republicans, including the presidential candidates, generally oppose federal aid for distressed homeowners as a bailout for people who made bad choices. The new program, and the emphasis on unilateral action, seem likely to inflame that opposition.
The plan’s modesty, meanwhile, may not assuage Democrats’ anger at the administration for doing too little to help homeowners repair their shattered finances, particularly in the face of evidence that the housing crisis is a major impediment to renewed economic growth.
Speaking in Las Vegas on Monday — in the center of the housing crisis and in a presidential battleground state — Mr. Obama addressed both groups of critics. The problems required government action, he said, and while the new changes were not by themselves sufficient, “that is no excuse for inaction.”
“I’m here to say that we can’t wait for an increasingly dysfunctional Congress to do its job,” he said. “Where they won’t act, I will.” He added, however, that Congress should pass the measures he proposed in September to stimulate growth, create jobs and help the housing market.
Most of the Republican presidential candidates argue that the government should focus on repairing the economy, which will help the housing market. In the meantime, they have said, offering relief to homeowners threatened with foreclosure would be an intrusion into the free market.
“The right course is to let markets work,” Mitt Romney said at a debate in Las Vegas last week. Rick Santorum concurred. Herman Cain said, “We need to get government out of the way.”
Monday’s announcement is an effort to revive a program that has fallen well short of expectations since it was announced in 2009. Under the program, the government-owned mortgage companies Fannie Mae and Freddie Mac have financed new loans for almost one million borrowers who could not qualify for traditional loans because of declines in their homes’ values.
The expansion, announced by the Federal Housing Finance Agency, aims to double that number — although that would still be a small share of the more than 10 million homeowners with loan balances larger than the values of their homes.
“We have far too many Americans who have paid their bills and done everything right on their mortgages and yet they’re still stuck with interest rates of 6 or 7 percent,” said Shaun Donovan, secretary of housing and urban development.
The changes, which will take effect over several months, will let people qualify for new loans no matter how far the values of their homes have fallen, so long as they have made at least six consecutive monthly payments. The plan also will reduce borrowers’ fees, for example, by dispensing with the need for an appraisal in many cases and by automatically transferring mortgage insurance to the new loan.
Fannie Mae and Freddie Mac generally require refinancing lenders to assume responsibility for any problems with the original loan because in making the new loan they are relying in part on that original documentation. That has made lenders reluctant to refinance loans for which they are not already responsible. That provision will now be waived, in exchange for a fee.
But the program still applies only to loans that Fannie and Freddie acquired before May 31, 2009. It does not reduce the amount that borrowers owe. And only borrowers with less than 20 percent equity in their homes are eligible; those with more equity must seek a refinancing through the standard and more expensive channels, although the government is considering making some of the same changes, like reducing fees, for those borrowers.
Administration officials said Monday that refinancing could reduce the average borrower’s annual payments by about $2,500, multiplied by up to one million households — about $2.5 billion available for spending on other things.
But the actual impact will be smaller, even if the program achieves its goals, because households are not likely to spend all of their savings, and because some of the money will come from other households that held the loans as investments.
William C. Dudley, the president of the Federal Reserve Bank of New York, described the plan as “a step in the right direction,” but said it would not help enough.
“Problems in the housing market are a serious impediment to a stronger economic recovery,” he said. “This calls for a comprehensive approach to housing policy, starting with an urgent effort to remove the obstacles that make it difficult for all borrowers to refinance at today’s low mortgage rates.”
The flaws in the original program were obvious from the outset, but the administration was unable to wring the necessary concessions from the mortgage industry or even from Edward J. DeMarco, the acting director of the Federal Housing Finance Agency, who has resisted various proposals as inconsistent with his primary responsibility to limit the losses of Fannie and Freddie.
A few months ago, Mr. DeMarco agreed under prodding from the administration to convene a meeting with industry representatives to review the shortcomings of the program and the continuing problems in the housing market. It quickly became clear that the experience of the last few years had engendered a much greater willingness to make the necessary compromises. For example, borrowers who took out two mortgage loans, and cannot afford to repay the second loan, cannot refinance the first loan without the permission of the second lender. The government has now negotiated a blanket grant of permission from many large lenders.
Mr. DeMarco said Monday that the agency had concluded that the expanded program would save money by reducing defaults.
Gene Sperling, director of the president’s National Economic Council, said, “What has changed and made this more viable and led the president to push all of us even harder was that there was a growing awareness among all the stakeholders” that this problem needed to be addressed.
Jackie Calmes contributed reporting from Las Vegas, and Trip Gabriel from New York.
This story, "Expansion of mortgage program is limited in scope," originally appeared in The New York Times.