The announcement by Treasury Secretary Jacob Lew was timed to coincide with the fifth anniversary of the Making Home Affordable program, an Obama administration initiative launched at the height of the economic crisis in 2009 to revitalize the housing sector and curb runaway foreclosures.
He said the program would be extended through December 2016.
"We need to continue to be there for homeowners who are facing foreclosure, those who are struggling with increasing interest rates on their modified mortgages, and those whose homes are caught underwater," Lew said at an event to mark the program's anniversary.
According to Treasury Department, more than 1.3 million homeowners have modified their mortgages under the program, reducing monthly payments by about $540 a month.
Although nationwide foreclosure rates have started dropping, millions of families are still struggling. Different estimates of underwater households range from 6.5 million to 9.7 million at the end of 2013.
Lew also said the administration would use money from the Treasury Department's Federal Financing Bank to help housing finance agencies fund the construction of more affordable rental housing.
The collapse of the housing market created a spike in demand for rental housing, which has driven up costs. Many Americans are renting because they lost their homes, are afraid to buy a home, or cannot access mortgage credit.
The Obama administration has called on Congress to allow Ginnie Mae, a government-sponsored enterprise, to securitize loans made under the Federal Housing Administration risk-sharing program, but so far lawmakers have not acted.
The risk-sharing program allows state housing finance agencies to underwrite multifamily FHA loans while agreeing to share the risk of losses on those loans.
Lew said that until Congress acts, the administration was directing the Federal Financing Bank to fund FHA-insured mortgages.
Allowing Ginnie Mae to securitize those loans would lower the interest rates and bring down the cost of financing rental housing projects.
Lew said the administration was also looking for ways to attract more private capital to the housing market, which is dominated by government-controlled mortgage finance firms Fannie Mae (>> Federal National Mortgage Assctn Fnni Me) and Freddie Mac (>> Federal Home Loan Mortgage Corp).
The Treasury Department is seeking public comments on what it can do to foster a more robust private-sector mortgage securitization market with the hope of making loans more available.
"I have directed my team to bring investors and securitizers together in the months ahead so we can uncover new paths to increase private investment," Lew said.
(Reporting by Elvina Nawaguna; Editing by Paul Simao, Toni Reinhold)
By Elvina Nawaguna