Two U.S. Senators have
reintroduced a bill which aimed at giving Freddie Mac and Fannie Mae (the GSEs)
financed homeowners with equity the some opportunity to refinance as currently
enjoyed by homeowners who are underwater.
The Responsible Homeowner Refinancing Act would extend the guidelines
and reduced fees available under the Home Affordable Refinance Program (HARP)
to homeowners regardless of the loan-to-value (LTV) ratio of their current GSE
owned or guaranteed loan.
According to the THOMAS Library of
Congress website, the bill was originally introduced on May 10, 2012 and
referred to the Senate Banking Committee where it apparently died. The new version is sponsored by Robert Menendez
(D-NJ) and Barbara Boxer (D-CA).
According to its sponsors, the
bill would be available to borrowers who are current on their existing GSE
owned or guaranteed loans. It would:
- Remove barriers to competition.
The lender currently servicing a loan has an advantage over a new lender
which faces stricter underwriting criteria and greater risks from the GSEs'
reps and warranties should the borrower default. These different standards have hindered competition,
resulting in higher prices and less favorable terms for borrowers. The proposed legislation would direct the
GSEs to require equalize the underwriting and associated reps and warranties between
new lenders and current servicers.
- Guarantee equal access to
streamlined refinancing for all GSE borrowers.
HARP guidelines continued to distinguish between borrowers with LTVs above 80
percent and those below, leaving higher equity borrowers with greater costs and
administrative burdens and effectively locking them out of the program. The bill will allow all
lenders to offer a single, streamlined program to all GSE borrowers who have
been paying their loans on time.
- Eliminate up-front fees completely
enhancements to HARP earlier this year, some fees for HARP loans were lowered
and others were eliminated completely, creating what the sponsors call an
economically indefensible situation in which borrowers with significant equity
face steeper costs for refinancing than borrowers with no equity and hence
presenting considerably greater risk.
These additional fees can be as high as two percent of the loan
amount. The bill prohibits the GSEs from
charging up-front fees to refinance any loan they already guarantee, which is
also in the best financial interests of the GSE's and taxpayers.
- Eliminate appraisal costs for all
Borrowers who live in communities without a
significant number of recent home sales are often precluded from the Automated
Valuation Models widely used by the GSEs and must pay hundreds of dollars for a
manual appraisal to refinance. The
proposed bill will require the GSEs to develop additional streamlined
alternatives to manual appraisals, eliminating a significant barrier and
reducing cost and time for borrowers and lenders alike, especially in rural
- Further streamline the refinancing
Since participation in HARP requires that borrowers be current on their
loans and with a demonstrated commitment to timely payments, there is no reason
to require proof of employment or income for these loans. The GSEs already own the risk which will only
decrease with lower interest rates and payments. The bill eliminates employment and income
verification requirements, further streamlining the refinancing process and
removing unnecessary costs and hassle for lenders and borrowers alike.
- Save taxpayers money.
The sponsors cite the Congressional Budget
Office which says the bill will pay for itself through reduced default rates of
existing GSE loans.
Menendez said, "Passing this bill will get rid of the red tape that leaves
millions of borrowers trapped in higher interest loans, puts money back into
the pockets of middle class families, and strengthens our economy. I'm asking
Republicans to join us in putting families first."
Boxer said, "This bill is a win-win-win: homeowners will have more money in
their pockets, Fannie and Freddie will see fewer foreclosures, and the housing
market and economy will be strengthened. That's why the Menendez-Boxer bill has
such broad support from industry and consumer groups."
The legislation has received support from the
Mortgage Bankers Association, National Association of Realtors, National
Association of Home Builders and the Center for Responsible Lending.