The Obama administration's latest expansion of its "home affordable" refinance program, outlined just before the July 4 holiday, could be huge news for tens of thousands of owners whose houses are seriously "underwater," or where they're worth a lot less than the mortgage balance owed on them.

Under the new rules, even where borrowers have negative equities of as much as 25 percent, they may be able to refinance into better loan terms, provided their mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.

Under the original rules for the program, the cutoff point was just five percent negative equity -- or a "loan to value" (LTV) ratio of 105 percent.

Though an estimated 80,000 owners already have been refinanced by Fannie and Freddie, HUD Secretary Shaun Donovan and Treasury Secretary Tim Geithner decided that the 105% LTV limit left too many borrowers out of reach.

In some parts of California, Nevada, Arizona and Florida, 40 to 50 percent of home owners are now stuck with negative equities, according to industry estimates. In Las Vegas, 67 percent of owners are underwater.

Zillow.com estimates that nationwide, 22 percent of all owners have negative equity in their properties - many of them by more than five percent.

The newly-expanded "home affordable" program opens the door not only to lower monthly payments for seriously underwater borrowers, but also to the possibility of shorter loan pay-off terms to reduce mortgage principal debts much faster.

Here's an example of how the expanded program could work:

Say your house is currently valued at $240,000, but your mortgage balance is $300,000.

You are underwater by 25 percent.

If your loan is owned or guaranteed by Fannie or Freddie, and you're not behind on your payments, you should be eligible for a "home affordable" refi.

Say your current payments are eighteen hundred sixty dollars a month. By refinancing into a new 30-year, $300,000 loan at five and a quarter percent, you could cut your principal and interest payment to about sixteen hundred sixty a month - a $200 saving.

Or you could shorten your loan term from 30 years to say, 15 years or 20 years at five and an eighth percent. If you could handle the slightly higher monthly payments, you'd accelerate your principal paydown speed, build equity and go from underwater to above water much faster, even without local market value appreciation.

To take advantage, contact your loan servicer to see if your mortgage is owned by Freddie or Fannie. Or you can check online at either http://loanlookup.fanniemae.com/loanlookup/, or http://www.freddiemac.com/mymortgage.

Published: July 13, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.