Let people refinance their mortgages for a whole lot more than the house is worth, no matter who owns the loan. Loosen the money spigot even more. And tell homeowners to be patient, because it’s going to take a while to refinance and modify every troubled mortgage.

Those are some of the requests that the mortgage industry makes in a letter to the Obama administration. The letter from the Mortgage Bankers Association is a response to the White House’s foreclosure prevention plan, announced last week.

The Obama initiative, called the Homeowner Affordability and Stability Plan, or HASP, seeks to help homeowners avoid foreclosure or hardship. It aims to help two groups of homeowners:

1. People who have conforming mortgages and who have never seriously fallen behind on the payments could refinance at lower rates — even if they owe as much as the house is worth. These people would end up with new loans, with improved rates and terms, that are difficult or impossible to get under today’s stricter underwiting rules.

2. For people with subprime or exotic mortgages with adjustable rates, HASP paves the way to modify loans so the monthly payments are affordable. Borrowers would keep their current loans, but with lower payments.

Questions and suggestions

The MBA says it agrees with “the majority of the conceptual underpinnings of HASP.” The association has suggestions for improving it, and its members have lots of questions about how to make it work in practice. You might have some of the same suggestions and questions.

One MBA suggestion is to get rid of the 105 percent limit on the loan-to-value ratio for refinances.

The Obama plan would allow borrowers to refinance with new loans up to 105 percent of the home’s appraised value. Imagine someone who bought a $120,000 house a few years ago. The house has lost value, and now it’s worth $100,000. Under HASP, the owner could refinance at a lower rate for $105,000, which is 105 percent of the home’s value.

The MBA wants to get rid of that 105 percent cap, or at least make it higher. The places with the greatest number of late payments are the places where prices have fallen farthest — California, Nevada, Arizona, Florida, Ohio and Michigan. “Many borrowers in these areas would be precluded from the benefits of the HASP refinance program if the (loan-to-value) ratio on their loan is over 105 percent,” the MBA says in its letter to the Treasury and Housing secretaries.

The MBA says that if the Treasury insists on keeping the 105 percent limit, it should allow homeowners to refinance and get two loans: one loan for an amount under the cap, and another loan, called a “priority second lien mortgage,” for the rest. This priority second lien loan would be kind of like a piggyback mortgage. It would be repaid from any gain on the future sale of the house.

Where the garbage is

According to the MBA, there’s another flaw in the refinancing program. Under HASP, only mortgages guaranteed or owned by Fannie Mae or Freddie Mac would be eligible for these refinances. Millions of people have mortgages that are not owned by Fannie or Freddie. They would not qualify for refinancing under HASP, and thus less likely to be able to get more-favorable rates.

“MBA believes otherwise eligible borrowers should not be denied a refinance simply because Fannie Mae and Freddie Mac do not own or guarantee their loans,” the letter says.

There’s another problem with helping only people with Fannie and Freddie loans, the MBA says: It excludes homeowners with jumbo loans, and might exclude those with the jumbo conforming loans that were introduced about a year ago. HASP’s refinancing program should include loans above the conforming limit, the MBA says.

The problem, says one observer who asked not to be identified, is that non-Fannie and Freddie loans are “where the real garbage is — and the taxpayers shouldn’t get involved. Yes, homeowners had no control over where their loans went, but that can’t be solved now.”

Patience, please

The MBA makes an understated plea for the administration to use its bully pulpit to tell borrowers to be patient. As millions of people request modifications or refinances, waiting times will get long. “This process will necessarily be manual,” the MBA says, adding that the association “wants the government and borrowers to have realistic expectations of how quickly all of the loans eligible under the program can be identified and processed.”

Finally, the MBA wants the feds to increase the availability of money. When you get a mortgage, the lender usually gets the money from a “warehouse line of credit” that acts like a multimillion-dollar credit card. Then the lender sells the loan (maybe to Fannie or Freddie) and pays back the warehouse lender. Then the lender can borrow again from the warehouse line to make another mortgage, and so on and so on.

MBA officials are telling members that warehouse lines of credit have shrunk by 90 percent over the last two years, from a nationwide total capacity of $250 billion to $300 billion in early 2007 to $25 billion to $30 billion today. This has several effects. One of them is that jumbo mortgages are hard to find and have high rates.

The MBA reportedly has asked the federal government to guarantee warehouse lines — a move that almost certainly would make more loans available. Another option would be for Fannie and Freddie to provide warehouse lines of credit themselves.

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