Two U.S. Senators have reintroduced legislation to help homeowners refinance into lower interest mortgages. The bill, The Responsible Homeowner Refinancing Act of 2013, removes the barriers preventing the Fannie Mae and Freddie Mac borrowers from refinancing their loans at the lowest rate possible.
The legislation, introduced by Robert Menendez (D-NJ) and Barbara Boxer (D-CA) had failed to pass the 112th Congress. If passed it would direct the GSEs to require the same streamlined underwriting and associated representations and warranties under the Home Affordable Refinancing Program (HARP) to new servicers who now face stricter underwriting guidelines fear greater risk from putbacks and loan repurchases than do the current servicers who already have the risk. This would level the playing field and unlock competition between banks for borrowers' business.
When FHFA recently expanded HARP eligibility to underwater borrowers, they continued to require lenders to distinguish between borrowers with less than 20 percent equity and greater than 20 percent equity in ways that left higher equity borrowers with greater costs and administrative burden. Although the GSEs lowered up-front fees for HARP loans with less than 20 percent equity, they left them in place for those with more equity. This created the economically indefensible situation in which borrowers with significant equity in their homes and presenting lower risk could face steeper costs in refinancing than borrowers with no equity whatsoever and therefore higher risk. These additional fees can be as high as two percent of the loan amount, or an extra $4,000 on a $200,000 loan.
This 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 GSEs and taxpayers.
GSEs use Automated Valuation Models to determine home values without the need for slow and costly manual appraisals. However, borrowers who happen to live in communities without a significant number of recent home sales often cannot use these models and are forced instead to pay hundreds of dollars for a manual appraisal for a HARP refinance.
This bill requires 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 areas.
HARP already restricts participation to borrowers who are current on their loans and have demonstrated a commitment to making their payments on time - even in the face of loss of income or employment. There is thus no reason to require proof of employment or income for these loans, particularly given that the GSEs already retain the risk which will only diminish with lower interest rates. This bill eliminates employment and income verification requirements, further streamlining the refinancing process and removing unnecessary costs and hassle for lenders and borrowers alike.
According to the CBO, the bill pays for itself through reduced default rates on GSE loans, which saves taxpayers money.
Finally, the bill extends the HARP program for one additional year beyond its scheduled expiration of December 31, 2013.
Under HARP an average homeowner saves about $2,500 per year. This bill would increase the amount they could save and expand refinancing opportunities for millions of eligible borrowers.