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A federal mortgage insurance program from the Bush administration is expanding to allow as many as 100,000 borrowers at risk of foreclosure to keep their homes.

Borrowers who are as much as three months behind on their mortgages, have damaged credit histories and owe more than their homes are worth will now be potentially eligible to refinance with a federally insured loan, according to U.S. Housing and Urban Development Department Assistant Secretary Brian Montgomery.

This comes as an attempt by the administration to try and curb foreclosures, which jumped as much as 60 percent in the past year and has contributed to a drop in consumer spending and economic growth. In relaxing the rules to help delinquent homeowners with zero to negative equity, the Federal Housing Administration is agreeing to make good on the mortgages that lenders write for the program should they default.

Under the program, FHA will insure loans with negative equity if lenders are willing to write down the loan balance so there is at least 3 percent equity for borrowers with two months of delinquencies and 10 percent for borrowers with three months of late payments within the previous year.

The administration is trying to find a balance between protecting homeowners who “played by the rules” without allowing banks to dump bad loans on taxpayers, Montgomery told the House Financial Services Committee in Washington.

“We must not federalize the housing market,” Montgomery said. “And we must not harm our economy through solutions that, however well intentioned, further erode the foundation of the nation’s housing market, hurt homeowners who are meeting their mortgage obligations, or prolong the correction.”

About $460 billion of adjustable-rate mortgages are scheduled to reset this year, according to New York-based analysts at Citigroup Inc. Subprime ARMs accounted for the biggest share of mortgage delinquencies and foreclosures last year as rates began resetting higher amid the biggest annual slump for existing home sales in 25 years and the first decline in single-family homes values since the Great Depression.

The proposal builds on the FHASecure program, which insured new loans to borrowers stuck in adjustable-rate mortgages that they were paying on time before their terms reset. The program only applied to mortgages with interest rate resets between June 2005 and December 2007. Montgomery said 150,000 homeowners have refinanced through FHASecure since it was announced in August.

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