Menendez, Boxer Introduce Bill to Help Responsible Homeowners Refinance

Menendez, Boxer Introduce Bill to Help Responsible Homeowners Refinance

The Responsible Homeowner Refinancing Act of 2012 a Key Part of President Obama’s “To Do List”

Washington - U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) will today introduce legislation to help millions of responsible homeowners refinance at lower rates and save thousands of dollars each year - a measure that would help check off a main element of President Obama's "to do list" for Congress. Earlier this week, Obama called on Congress to act on a number of measures to create jobs and restore security for middle class families, including housing refinance legislation. The President will underscore the importance of helping homeowners refinance when he travels to Nevada tomorrow.

"I agree with President Obama's 'to do' list to create jobs and strengthen our middle class," said Menendez. "That's why Senator Boxer and I are introducing legislation today to clear the way for responsible homeowners to refinance and lower their mortgage rates. It will put thousands of dollars back in the pockets of hard working families and boost our economy. There's no reason why we can't move this bill to our 'done' list quickly."

"This bill is a win-win-win -- a win for responsible homeowners who will be able to refinance at record-low rates, a win for mortgage lenders who will enjoy an influx of new business, and a win for communities and our economy, which will benefit from additional refinances that will be made possible by this bill," Boxer said.

Moody's Analytics Chief Economist Mark Zandi has projected that the bill will result in three million additional refinances. The average rate for a 30-year mortgage is 3.84 percent - a rate that is historically low. Nevertheless, there are 17.5 million homeowners with loans guaranteed by Fannie Mae and Freddie Mac paying interest above 5 percent, many of whom cannot refinance at a lower rate because of unnecessary red tape and high fees. That red tape has prevented competition among banks, so borrowers end up paying higher interest rates than if they were able to shop around.

Under the Administration's current refinancing program (HARP), an average homeowner saves about $2,500 per year. This bill would increase the amount they could save and would likely expand the pool of eligible borrowers by several million.

The Responsible Homeowner Refinancing Act of 2012 removes the barriers preventing these Fannie Mae and Freddie Mac borrowers from refinancing their loans. The bill would:

• Extend streamlined refinancing for all Fannie and Freddie borrowers regardless of how much they owe compared to the value of their home
• Eliminate up-front fees completely on refinances
• Eliminate appraisal costs for all borrowers
• Remove additional barriers to competition
• Require second lien holders and mortgage insurers who unreasonably block a refinance to pay a fine
• Pay for itself since reducing homeowners' mortgage payments also reduces default rates and foreclosures, reducing Fannie and Freddie's reliance on taxpayer bailouts. So the bill is good for both taxpayers and homeowners.

The bill has been endorsed by a wide array of groups including Americans for Financial Reform, Amherst Securities (mortgage investor), Center for Responsible Lending, Columbia Business School Professor Chris Mayer, National Council of La Raza, Moody's Analytics Chief Economist Mark Zandi, National Association of Homebuilders, National Association of Mortgage Brokers, National Association of Realtors, National Consumer Law Center (on behalf of its low income clients), and Quicken Loans.

Co-sponsors of the bill currently include: Senators Reed, Merkley, Durbin, Stabenow, Franken, Begich, and Feinstein.

Summary of The Responsible Homeowner Refinancing Act of 2012

Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA)

There are 17.5 million loans guaranteed by Fannie Mae and Freddie Mac paying interest above 5 percent that could benefit from a refinance. Although recent changes to the Home Affordable Refinance Program (HARP) were a step in the right direction, they leave in place barriers that will keep millions of borrowers trapped in higher interest loans. The Menendez-Boxer Responsible Homeowner Refinancing Act will build on these changes and further expand opportunities to access historically low interest rates for borrowers who make their mortgage payments on time.

To remove the barriers preventing borrowers current on their payments from refinancing their loans, the bill would:

• Extend streamlined refinancing for GSE borrowers
FHFA recently expanded HARP eligibility to underwater borrowers and made several important changes to streamline the underwriting process and reduce the costs of refinancing. As currently structured, however, these reduced costs would apply only to HARP-eligible borrowers with less than 20 percent equity; Freddie Mac actually imposed new barriers on higher equity borrowers, making their ability to refinance more difficult.

This bill would ensure that all GSE borrowers who are making their payments have the same access to simple, low-cost refinances, regardless of loan to value. Not only is this an issue of fairness, but applying these measures to higher equity borrowers makes good business sense. Allowing banks to have a single set of rules for all GSE borrowers will simplify the process and make it easier and more automatic for servicers to market and promote this program. The bill also extends the date of eligibility for borrower participation an additional year, through May 31, 2010, the point at which interest rates remained steadily under 5%.

• Eliminate up-front fees completely on refinances
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 odd situation where borrowers with high levels of equity seeking to refinance could face steeper costs than borrowers with no equity. The GSEs already bear the risks on these loans; yet this policy actually makes it less likely that borrowers will be able to take advantage of the low rates and increases the chance they will eventually default. These additional fees can be as high as two percent of the loan amount, or an extra $4,000 on a $200,000 loan. For borrowers struggling to keep up with their payments, this is an additional cost they simply cannot afford. This bill prohibits the GSEs from charging up front fees to refinance any loan they already guarantee.

• Eliminate appraisal costs for all borrowers
Even with the GSE's expanded use of Automated Valuation Models, borrowers who happen to live in communities without a significant number of recent home sales will have to get a manual appraisal for a HARP refinance. This bill requires the GSEs to develop and allow additional streamlined alternatives to manual appraisals to determine the value of a property for which a HARP refinancing is sought. This will eliminate a significant barrier that will reduce cost and time for borrowers and lenders alike.

• Further streamline refinancing application process
HARP already restricts participation to borrowers who are current on their loans and have demonstrated a commitment to making their payments on time - despite any loss of income or home value. Lowering the interest rate for these borrowers increases the odds that they will be able to continue making their payments and reduces the risk of default faced by the GSEs. By eliminating employment and income verification requirements, this bill further streamlines the refinancing process and allows lenders to send eligible borrowers a pre-approved application packet that they need only sign and return. Since taxpayers already own the risk of these loans, it makes no sense to impose these requirements that could prevent borrowers from getting lower payments.

• Remove additional barriers to competition
Under HARP, lenders looking to compete with the current servicer of a borrower's loan continue to face barriers to participating in the program. This lack of competition means higher prices and less favorable terms for the borrower. This bill would direct the GSEs to require the same streamlined underwriting and associated representations and warranties for new servicers as they do for current servicers, leveling the playing field and unlocking competition between banks for borrowers' business.

• Require second lien holders who unreasonably block a refinance to pay a fine
The bill would require lenders who do not permit a second lien to be re-subordinated to a refinanced loan, as long as that refinanced loan does not increase the risk faced by the second lien holder, to a fine that will be applied to the borrower's primary loan balance. Many borrowers have been prevented from refinancing because their second note-holder has refused to re-subordinate their lien, even though reducing payments on the first mortgage would make it more likely the borrower would be able to continue making payments on the second, putting the second lien holder in a better position.

• Require mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay a fine
As with second lien holders, any refinancing of a loan that makes it easier for a borrower to repay puts a mortgage insurer in a better position. Following the recent changes to HARP, all mortgage insurers except United Guaranty, a subsidiary of TARP-recipient AIG, have agreed to voluntarily and automatically carryover existing coverage to the refinanced loan. Approximately 15 percent of all GSE loans with mortgage insurance receive their coverage from United Guaranty and are effectively excluded from refinancing. This bill would level the playing field by requiring mortgage insurers who refuse to transfer coverage to refinanced loans to pay a fine that will be applied to the borrower's primary loan balance.

• Bill Pays for Itself
According to preliminary estimates by the CBO, the bill pays for itself through reduced default rates on GSE loans, which saves taxpayers money and reduces the amount of any bailouts. It does NOT increase guarantee fees.