A newly-streamlined government program to reward homeowners who diligently pay their underwater mortgages is proving a bonanza for banks which, according to one estimate, may pocket $12 billion in extra revenue by refinancing loans

Revisions to the three-year-old Home Affordable Refinance Program by Obama’s administration have yielded mixed results for homeowners, mortgage professionals and analysts say

Some responsible homeowners are indeed getting lower-interest loans even though they owe far more than their homes are worth. But others must jump through hoops that the plan was supposed to eliminate, such as on-site appraisals and extensive paperwork, or they have loans that don’t qualify

Critics of the plan say that homeowners who get new loans are being stuck with higher rates than necessary, often half a percentage point or more. That's because, instead of banks competing against one another, which would drive rates down, they are refinancing only their own borrowers

Banks should charge lower than the market interest rate because the new version of the program means less risk and less work for them. But instead, they’re charging more, said Laurie Goodman, an Amherst Securities analyst

The program is an important part of Obama's efforts to bolster the ravaged housing market. Administration officials including Housing and Urban Development Secretary, Shaun Donovan, are put pressuring on Congress to pass a law, which would allow more homeowners to participate in the program

There's a pressing urgency here because interest rates today are the lowest level they’ve ever been, Donovan testified in May before the Senate Banking Committee. But as the economy continues improving, the window of record low interest rates may not last much longer, he said

In response, Senators Barbara Boxer (D-Calif) and Robert Menendez (D-N.J.) said they would immediately introduce legislation extending streamlined refinancing to all underwater Freddie Mac and Fannie Mae borrowers and eliminate upfront and appraisal fees in order for homeowners using the program to obtain new loans

The Home Affordable Refinance Program is not as controversial as relief plans for delinquent borrowers. Few people have disagreed to its goal of assisting homeowners who pay their loans on time but can't refinance at today's record low rates because their home values have plummeted

Borrowers must owe more than 80 percent of the current home value to qualify. They also cannot have been late by 30 days more than once in the last year and cannot have missed a payment for the last six months

At the beginning of this year, nearly 1 million loans had been replaced using the program, but only one in 10 had balances higher than 105 percent of the home value. Phased in during the first quarter, the changes aim to encourage refinances no matter how far underwater the loan is

The program is for loans backed or owned by Freddie Mac and Fannie Mae, the government-supported mortgage buyers that handle 60 percent of the home loans in the United States. It works by having mortgage customer-service providers, which are mainly arms of banks, refinance borrowers into new loans that are sold to Freddie Mac or Fannie Mae

Because Freddie Mac and Fannie Mae are already stuck with the losses if the existing loans go bad, the thinking goes, substituting lower-interest new mortgages actually reduces everyone's risk. The homeowners have hundreds of dollars more each month, which makes them less likely to default — while providing a lift for the economy when they spend their extra cash as well as a boon to their local housing markets.