That's not entirely accurate. If you have a 250,000 loan you want to refi, from 5% to 3.75% (for the pure sake of argument).
On your 250k loan, the bank is being paid a total of 233,139.46, on a 30 year note, in interest. Lets say banks are nice and they gave you that rate when the prime was 4.8%. They're making 10,940.64 in profit. Lets see what happens if the prime drops to 3.55% (its even lower in reality) and they're still only charging you an extra .2%.
Original
250,000
233,139.46 @ 5%
222,198.82 @ 4.8%
10940.64 profit
New:
166,804.03 @ 3.75%
156.656.34 @ 3.55%
10117.69 profit
8% loss in profit
Now granted these numbers are small. The margin in reality is closer to a half a percent over prime, and the banks will likely make back some of that money in closing costs, but ultimately, in an apples to apples comparison, banks lose on this deal. With the current foreclosure rate, it may break even if it keeps people out of foreclosure, but assuming it doesn't help anyone, banks are definitely losing money on this, AND the fed is trying to entice them into covering more of the national debt in a way that will likely lead to more failed banks.