WASHINGTON, DC- Citing new momentum and support among a broad array of stakeholders, U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) today reintroduced the Responsible Homeowner Refinancing Act and called for Republicans to join them in passing the measure which would help millions of responsible homeowners refinance at lower mortgage rates.
"I've received thousands of messages from hardworking homeowners back home, including a cancer survivor named Linda who said trying to refinance her mortgage is harder than fighting cancer," said Senator Menendez. "Passing this bill will get rid of the red tape that leaves millions of borrowers like Linda trapped in higher interest loans, put money back into the pockets of middle class families and strengthen our economy. I'm asking Republicans to join us in putting families first."
Senator 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 is supported by a broad array of stakeholders representing borrowers, lenders, sellers, finance and industry, and other experts including the Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders and the Center for Responsible Lending.
Over the past few months, Senator Menendez has received thousands of messages from New Jerseyans who shared their personal stories and encouraged the Senator to push for passage of the bill as soon as possible. A sample of those messages is at the end of this release.
Click Here for a PDF of the bill.
Summary of The Responsible Homeowner Refinancing Act of 2012
Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA)
There are nearly 13.5 million responsible borrowers in loans guaranteed by Fannie Mae and Freddie Mac who could benefit from refinancing at today's low interest rates. Although recent changes to the Home Affordable Refinance Program (HARP) were a step in the right direction, they left in place barriers that will keep millions of borrowers trapped in higher interest loans. The 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 who are making their payments on time from refinancing their loans at the lowest rates possible, the bill would:
Under HARP, lenders who want to compete with the borrower's current lender for that borrowers' business continue to face stricter underwriting criteria and greater risk that the GSEs will force them to buy that loan back should the borrower default. These different standards have posed a barrier to competition, resulting in higher prices and less favorable terms for borrowers. A recent study by Amherst Securities Group found that HARP borrowers are paying more than half a percentage point more than borrowers with other types of loans.
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.
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. This meant that borrowers who have been paying down their mortgages over many years, building equity in their homes, were locked out of the program.
This bill would ensure that all GSE borrowers who are making their payments have the same access to simple, low-cost refinances, regardless of the level of equity they have in their home. This is not only a simple matter of fairness- it also makes good business sense. Providing a single set of rules for all lenders and all GSE borrowers will simplify the process for all involved, allowing all lenders to offer a single, streamlined program to all GSE borrowers who have been paying their loans on time.
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 could face steeper costs in refinancing than borrowers with no equity whatsoever. So borrowers who pose less risk to the GSEs are in fact paying a higher risk premium. 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, which is also in the best financial interests of the GSE's 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. Again, this just makes good economic sense. Taxpayers are already on the hook for these loans and will benefit from providing the borrowers with an easier path to refinancing.
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, and that risk will only go down with lower interest rates.
So 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.
What New Jerseyans Are Saying About The Responsible Homeowners Refinancing Act:
"My daughter, a teacher who lost her husband two years ago and has two teenage children, has been struggling to pay a mortgage and a second mortgage. She has not missed a payment and has been discouraged to refinance after she paid for a reassessment since the house is financially 'underwater'. Passage of the...bill would help her tremendously." - Catherine, Warren
"First, let me tell you that when I read this, tears formed in my eyes... We tried the 'mortgage modification' route, but we were denied because we had too much equity and made too much money, even though my wife was unemployed at the time and I was just starting a business... Because of that 'mortgage modification' try, our credit rating took a severe decline. I did not know this until I tried to refinance our mortgage amount at the current interest rates. We were denied again. If my family can refinance at today's lower rates, we would save $900 to $1000 per month. This would allow us to keep our house and my wife could afford to accept an entry level position." - Larry, Princeton Junction
"Even though I originally put down 30% of the house price, I cannot qualify to refinance with the reduction in my homes value -- even though my mortgage balance is still only 85% of the value. I have a credit score of over 800 and still can't take advantage of a full 2% reduction in the mortgage rate. I would save over $3,000 a year and that would be used to help my girls in their current underemployed situations." - Ken, Sewell
"I definitely think it would lower my monthly payments. For us working class people having to work 2 jobs to make ends meet -- while at the same time going to school -- it would certainly take some stress off our budget which can be diverted to savings to meet more pressing college education needs." - Joan, Piscataway
"My husband, who is 71, still has to work just to keep our heads above water. Plus, he works for the post office and we all know they are struggling too. ANY way we could save some money would be a big help. I have lived in my home for almost 66 years and I would like to live here until I pass on." - Linda, Ho Ho Kus
"My parents are currently on social security and paying a mortgage interest rate of 5.625%. Your proposal would reduce my parents' burden by at least $200.00 a month. My Mom says food costs are getting out of hand. An extra $200.00 a month would help out more than you can ever tell." -- Michael, Milford
"Having an extra $100 to $300 might not be much for a rich family, but in the community of Bordentown City, it would lessen families' and single people's burdens. Thank you for all the work you do for New Jersey and its citizens." - Heather, Bordentown
"It would help immensely. I have been trying to refinance for 2 years. We always pay our mortgage on time. We have school loans and we are drowning. It seems no one wants to help since we are not in default. The only help available is for someone who cannot pay anything. I am totally in support of your bill. I only wish it could help my family today. I spend days on the phone looking for help." - Susan, Secaucus
"It will help those homeowners who want to stay in their home, but are borderline when it comes to paying the mortgage. Personally, if I could save a few hundred dollars a month, I would make some needed repairs and improvements to my home. This would benefit me as well as the local merchants I patronize." - Dennis, Montclair
"The upfront fees have been the biggest hurdle for me. After applying the fees to the current mortgage balance, the new mortgage would result in minimal monthly savings. I cannot afford to pay the fees out of pocket." - Sharon, Sicklerville
"My daughter has applied for a refinance. Perfect credit. Not only was she turned down because her home was valued at $15,000 less than purchase price, she had to pay the cost of the appraisement of $490.00. So not only not get refinanced, but to pay not to get it. Is that fair?" - William, South Plainfield
"As a career law enforcement employee of the state of NJ, I would appreciate the opportunity to lower my mortgage since I have almost no chance of seeing a reduction in my city and county property taxes which are overwhelming to say the least. This legislation would allow thousands of homeowners who have seen the value of their homes plummet since purchasing only a few years ago, see some light at the end of the tunnel in regards to their finances. I wish Senator Menendez success with his efforts to help those in need." - Michael, Perth Amboy
"We applied for a refinance mortgage six months ago and it is still pending. We were finally approved last month and still are not able to close. The funding company keeps finding reasons to delay the closing... I have provided everything that was asked for and they keep coming back with nonsensical reasons to stall this closing... I am a cancer survivor for 9 years and thought that was the toughest fight of my life, until this. Trying to refinance my mortgage is harder than fighting cancer." - Linda, Toms River