Refinance Your Way Out of Trouble

In some cases, loan servicers also need to get the approval from credit ratings agency or bond insurers before modifying the terms of a mortgage being used as collateral, creating additional barriers to workouts.

Barr said about 75% of the estimated $600 billion in subprime loans originated in 2006 were funded by securitizations.

An increasing number of borrowers are also using Federal Housing Administration loans to refinance out of subprime mortgages. Assistant HUD Secretary Brian Montgomery told the House Financial Services Committee that FHA refinance loan volume was up 94% in the first five months of the agency's fiscal year over the year-earlier period. He said it's "safe to assume" that a significant portion of the loans being refinanced are subprime.

The number of subprime borrowers the FHA can help is currently limited because of limits on the size of loans it can insure and the requirement that borrowers make a down payment. Lawmakers are debating an overhaul of the FHA that would increase loan limits and give the agency more power to set insurance premiums commensurate with risk. Montgomery said this would allow the agency to "dive deeper into the pool of homeowners who could benefit from a refinancing of their subprime loan."

Still, even with an FHA revamp and new products from Fannie and Freddie, a number of subprime borrowers won't be able to refinance their way out of trouble because their loans carry prepayment penalties or because they are "upside down," meaning they owe more money than their house is currently worth.

Coming up next: homeowner's insurance.