By Dona DeZube for HouseLogic

President Obama last night proposed retooling a federal mortgage refinance program in the hopes that it would boost the housing market and reduce monthly mortgage payments — even for home owners who owe more than their home is worth.

“[To] help responsible home owners, we’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4%,” the president said in his speech to Congress. “That’s a step — I know you guys must be for this, because that’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”

Prior federal efforts to resolve the foreclosure crisis have fallen short. The current HARP helps refinance the homes of borrowers whose mortgages are 80% to 125% the size of their mortgage. (so a borrower with a $125,000 mortgage on a home valued at $100,000 could refinance). So far, fewer than 1 million home owners have used the program, which the Obama administration predicted would help 4 to 5 million Americans.

Mortgage lenders are reluctant to refinance borrowers using the HARP program because they worry they’ll be blamed and financially penalized when HARP borrowers fail to make their mortgage payments.

Obama’s economic team will work with Fannie Mae and Freddie Mac, their regulator the Federal Housing Finance Agency, major lenders, and industry leaders to remove the barriers that exist in the current HARP refinancing program to help more borrowers benefit from today’s historically low interest rates.

The 30-year fixed mortgage rate is now at a 60-year low of 4.35%, the jumbo fixed rate is at 4.86%, and the average 15-year fixed rate mortgage is at 3.48%, according to Bankrate.com.

Broadening U.S. home owners’ access to mortgage money will help borrowers keep their homes, which will reduce the number of vacant, foreclosed homes, and reduce losses for Fannie Mae and Freddie Mac, White House documents say.

Fannie Mae and Freddie Mac, along with the Federal Housing Administration, guarantee more than 90% of mortgage loans currently being made.

The Congressional Budget Office says a massive refinance program would save the three mortgage market giants $3.9 billion and save the homes of 111,000 home owners. Investors who bought mortgage-backed securities created with the loans refinanced in the proposed program would lose $13 billion to $15 billion, CBO estimates.

Neighborhood revitalization   

Obama also spoke about job creation, including Project Rebuild, a $15 billion program that would put construction workers on the job rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses.

“Building on proven approaches to stabilizing neighborhoods with high concentrations of foreclosures, Project Rebuild will bring in expertise and capital from the private sector, focus on commercial and residential property improvements, and expand innovative property solutions like land banks,” says a White House fact sheet on the program. “This approach will not only create construction jobs, but will help reduce blight and crime and stabilize housing prices in areas hardest hit by the housing crisis.”