New Home Loan Aid May Help Banks

The expansion of a bailout program for struggling homeowners on Wednesday is the latest sign that bank earnings will be unpredictable for at least the next few quarters, due to factors outside of core earnings.

The Obama administration said it has expanded its refinancing program to include borrowers whose mortgages are up to 125% greater than the value of their homes. The previous guideline was set at 105%. Homeowners who fall under the expanded umbrella and have a loan owned or guaranteed by Fannie Mae (FNM Quote) or Freddie Mac (FRE Quote) will be able to refinance their debt at a more attractive rate, bringing monthly payments down significantly.

Home borrowers in states like California, Nevada and Florida, where house prices have dropped dramatically, stand to benefit the most from this plan. But the move will also help extend a recent profit boon for banks that earn fees from servicing and processing the refinancings.

The country's largest banks shocked the markets a few months ago when reporting far healthier first-quarter results than investors had expected. The trend began with Wells Fargo (WFC Quote) in early April, followed by big competitors like Bank of America (BAC Quote), JPMorgan Chase (JPM Quote), Citigroup (C Quote) and Goldman Sachs (GS Quote).

Some analysts and critics have noted that the booming profits, or narrower-than-expected losses, might not be repeated. They were simply the result of one-time items, like big counterparty payments from American International Group (AIG Quote), changes to accounting standards, and government initiatives to improve the capital, credit and housing markets. Asset sales also stand to provide some hardy one-time gains in the quarters to come, as banks sell off major holdings to boost capital levels.