One in four homeowners with a mortgage - 11 million people - owe more than their home is worth. These "underwater" borrowers have virtually no shot at refinancing.
Their plight is a drag on the housing market and the broader economy.
The Obama administration is hoping at least 1 million of these borrowers will take advantage of its refinancing program under more lenient rules unveiled Monday. Homeowners who are current on their payments will be eligible to refinance no matter how much their home's value has dropped.
Still, it's unclear how many borrowers will benefit. Lenders will remain under no obligation to refinance a mortgage they hold.
A growing number of these people are missing mortgage payments and falling into foreclosure. And the higher rates they're locked into limit how much they can contribute to a weak economy. If they were able to refinance at today's rates, it could boost consumer spending by tens of billions of dollars, economists say.
Underwater homeowners are paying an average 30-year fixed mortgage rate of 5.7 percent, according to an analysis of mortgage data by CoreLogic and The Associated Press. That compares with today's average rate of 4.11 percent on a 30-year fixed mortgage. For a homeowner with a $250,000 mortgage, the lower rate would save more than $200 a month.
For many Americans, a few hundred dollars each month would mean the difference between paying their mortgage on time and in full and losing, or walking away from, their home.
Underwater borrowers are the "most desperate population in the country today," says Barry Bosworth, an economist at the Brookings Institution.
Dan and Maggie Micoff bought a two-bedroom home in the Detroit suburb of Marine City in 2003. They paid $119,000. Eight years later, they're underwater with a 6 percent loan.
If they could refinance, the Micoffs, both 58, could shave at least $120 from their monthly bill.
"The banks won't work with us," Maggie Micoff said. "We helped bail them out, and now we can't even get a personal loan to get by. We could rent something for a few hundred dollars cheaper."
Even among homeowners who do have equity in their homes, few are refinancing. Many have already refinanced within the past year. Others can't meet tighter lending standards. That's why underwater borrowers represent the best chance for refinancing to unleash spending that's otherwise going toward mortgage bills.
With millions locked into artificially high rates, foreclosures are rising. Mortgage default notices surged nationally last month.
Whether the administration's revamped mortgage refinancing program will reach more Americans this time is unclear, said Mark Vitner, senior U.S. economist at Wells Fargo.
"No one knows if it will spur a lot more people to refinance, but it's a start," Vitner said.