Thousands of struggling homeowners could reduce the amount of money they owe on their mortgages by up to $100,000 under changes that the state's Keep Your Home California program announced Monday.

Starting next month, Keep Your Home California, which is state-run and financed with nearly $2 billion in federal dollars, will no longer require mortgage servicers to provide a dollar-for-dollar match for the money it spends helping borrowers reduce the amount they owe.

The state also will raise its maximum principal-reduction grant from $50,000 to $100,000.

Officials said the changes are an effort to speed aid to more Californians facing economic hardship and the prospect of foreclosure. The dollar-for-dollar match was proving a major impediment; most lenders balked at providing matching funds, officials said.

An estimated 9,000 borrowers will benefit from principal reduction under the revamped guidelines, said Diane Richardson, head of Keep Your Home California.

"The federal government gave us these funds to help avoid foreclosure," Richardson said. "If banks aren't participating, that's not helping any borrowers. We've got to find a way to make it work."

Among the lenders that refused to reduce principal if it required matching funds were Fannie Mae and Freddie Mac, the government-sponsored enterprises that hold the majority of mortgages in California.

The changes in the state program will allow Fannie Mae and Freddie Mac borrowers to participate, a spokeswoman told the Los Angeles Times on Monday.

Keep Your Home California has been criticized for distributing aid too slowly to borrowers in danger of losing their homes to foreclosure. The program has given out about $411 million in aid to 19,000 homeowners since it started in February 2011.

Richardson said she expects critics to now say that the banks are getting a free ride at taxpayer expense. But she said the new rules require lenders to modify the interest rates and loan terms of mortgages to affordable levels "so the borrower can see the light and won't walk away," she said.

Keep Your Home announced two other program changes.

Starting Monday, it said it would increase the cap on its Mortgage Reinstatement Assistance Program from $20,000 to $25,000. The program helps homeowners struggling with financial hardship to catch up on mortgage payments, taxes and insurance.

It also said it would increase its overall benefit cap from $50,000 to $100,000 per household, beginning next month.

For information, go to www.keepyourhomecalifornia.org or call (888) 954-5337.

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