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. ...