Obama administration officials have decided to limit refinancings of "underwater" Fannie Mae and Freddie Mac mortgages to a loan-to-value ratio of 105% so the new mortgages can be securitized, according to Federal Housing Finance Agency Director James Lockhart.

"That is why the line is drawn there," Lockhart said at a meeting of government accountants. The refinancing program is designed to lower borrowers' mortgage rates, which the Federal Reserve Board and Treasury Department are trying to drive down by aggressively purchasing GSE MBS.

About 75% of the mortgages with LTVs above 80% the government sponsored enterprises own or guarantee fit under the 105% cap. If the program is successful, four million to five million mortgages may be refinanced. Servicers are already "overwhelmed," Lockhart said, and they didn't want to push the LTV any higher because of capacity issues.

He also noted that the GSEs have other loan modification programs to deal with more problematic underwater mortgages.

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