Any government effort to revamp programs offering homeowners financial relief must focus on the riskiest borrowers and must measure the impact on secondary markets, said a report from Bank of America Merrill Lynch mortgage-backed securities strategists. As it looks to boost the economy, the Obama administration is reportedly considering a sweeping new plan to allow underwater borrowers to refinance their mortgages at historically low rates, according to the New York Times. Government programs implemented so far, such as the Home Affordable Refinance Program, show limited reach, restraining their economic impact. Federal Reserve Chairman Ben Bernanke Friday urged Congress to do more to fix the housing market, which he said is acting as a drag on the economy. "A loan that goes into default is now likely to be put back to the originator, causing substantial losses, but the fees for creating a new loan are still stuck at about two points," write the authors, Chris Flanagan, Vipul Jain, Robert Marcus and Jimmy Nguyen, in the report. The government "should focus on boosting refinancings among the borrowers that pose the biggest default risk and incentivize lenders to increase capacity and become more efficient," said the report. One way to mitigate lenders’ downside risk: "The GSEs could clearly state that lenders for such loans will not have any putback liability as long as the loan documents are sufficiently complete that the GSEs could initiate foreclosures in the event of a borrower default," the report said. "This would remove obstacles that hinder originators from competing over high-risk borrowers." The government should also make the HARP program permanent, allow lenders to target specific borrowers for refinancings, and do what it can to keep the MBS market stable, said BofA Merrill. Write to Liz Enochs.