Washington, February 20 - The Obama Administration's plan to make it easier for up to 5 mln homeowners to refinance their homes will eliminate a mortgage insurance requirement for certain loans, according to an outline of the program provided by the Federal Housing Finance Agency (FHFA).

'The key characteristic of this initiative is that the borrower need not obtain additional credit enhancement (such as private mortgage insurance) on the refinanced loan in excess of what is already in place for that loan,' FHFA Director James Lockhart said in a letter to mortgage industry representatives.

Eliminating the need for mortgage insurance would allow homeowners to refinance their mortgages at lower interest rates even in cases where the value of a home has dropped to the point where the loan balance is higher than 80% of the value of the home. Under current rules, loan balances that high require mortgage insurance, which adds to the costs of a refinance and has acted as an obstacle to helping more people refinance.

FHFA said the new initiative, which Treasury announced this week as the Homeowner Affordability and Stability Plan, would allow refinances for loans that are as high as 105% of the current value of a home.

Lockhart noted that this change does not pose a significant risk, since borrowers after the refinance will have a lower monthly payment.

Lockhart also that cash-out refis cannot benefit under the program, and said the initiative will start on March 4 and be extended 'only through June 10, 2010.'

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