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.
The revised 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 on refinances.
Under 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.
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 areas
- Further streamline the refinancing application process.
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."