Homeowner Refinancing Act Resubmitted by Senators Menendez and Boxer

by devteam February 8th, 2013 | Share

Two U.S. Senators have reintroducedrnlegislation to help homeowners refinance into lower interest mortgages. The bill,rnThe Responsible HomeownerrnRefinancing Act of 2013,rnremoves the barriers preventing the Fannie Mae and Freddie Mac borrowers fromrnrefinancing their loans at the lowest rate possible. </p

The legislation,rnintroduced by Robert Menendez (D-NJ) and Barbara Boxer (D-CA) had failed tornpass the 112th Congress.   If passed it would direct the GSEs to requirernthe same streamlined underwriting and associated representations and warrantiesrnunder the Home Affordable Refinancing Program (HARP) to new servicers who now facernstricter underwriting guidelines fear greater risk from putbacks and loanrnrepurchases than do the current servicers who already have the risk.  This would level the playing field and unlockrncompetition between banks for borrowers’ business. </p

When FHFA recentlyrnexpanded HARP eligibility to underwater borrowers, they continued to requirernlenders to distinguish between borrowers with less than 20 percent equity andrngreater than 20 percent equity in ways that left higher equity borrowers withrngreater costs and administrative burden.  Although the GSEs loweredrnup-front fees for HARP loans with less than 20 percent equity, they left themrnin place for those with more equity.  This created the economicallyrnindefensible situation in which borrowers with significant equity in theirrnhomes and presenting lower risk could face steeper costs in refinancing thanrnborrowers with no equity whatsoever and therefore higher risk. These additionalrnfees can be as high as two percent of the loan amount, or an extra $4,000 on arn$200,000 loan.  </p

This bill prohibits thernGSEs from charging up-front fees to refinance any loan they already guarantee,rnwhich is also in the best financial interests of the GSEs and taxpayers. </p

GSEs use AutomatedrnValuation Models to determine home values without the need for slow and costlyrnmanual appraisals. However, borrowers who happen to live in communities withoutrna significant number of recent home sales often cannot use these models and arernforced instead to pay hundreds of dollars for a manual appraisal for a HARPrnrefinance. </p

This bill requires thernGSEs to develop additional streamlined alternatives to manual appraisals,rneliminating a significant barrier and reducing cost and time for borrowers andrnlenders alike, especially in rural areas.  </p

HARP already restricts participationrnto borrowers who are current on their loans and have demonstrated a commitmentrnto making their payments on time – even in the face of loss of income orrnemployment. There is thus no reason to require proof of employment or incomernfor these loans, particularly given that the GSEs already retain the risk whichrnwill only diminish with lower interest rates. This bill eliminates employmentrnand income verification requirements, further streamlining the refinancingrnprocess and removing unnecessary costs and hassle for lenders and borrowersrnalike. </p

According to the CBO,rnthe bill pays for itself through reduced default rates on GSE loans, whichrnsaves taxpayers money.</p

Finally, the bill extends the HARPrnprogram for one additional year beyond its scheduled expiration of December 31,rn2013.</p

Under HARP an averagernhomeowner saves about $2,500 per year. This bill would increase the amount theyrncould save and expand refinancing opportunities for millions of eligiblernborrowers.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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