Last night in the State of the Union address, President Obama called for Congress to pass the Menendez-Boxer refinancing bill, the Responsible Homeowner Refinancing Act of 2013, S. 249. The President stated:
"But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who have never missed a payment and want to refinance are being told no. That's holding our entire economy back, and we need to fix it. Right now, there's a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today's rates. Democrats and Republicans have supported it before. What are we waiting for? Take a vote, and send me that bill."
Senator Robert Menendez, Chairman of the Subcommittee on Housing, Transportation and Community Development of the Senate Committee on Banking, Housing, and Urban Affairs, issued the following statement:
"Congress should heed the President's call and immediately pass our refinancing bill to put $3,000 a year into the pockets of middle class families before interest rates go up and it's too late. We need to bring much-needed relief now to hard working, responsible homeowners who are struggling to keep up with their high interest rate loans -- including thousands in New Jersey whom I have heard from," said Senator Menendez. "It's time that Congress finally put families first and give homeowners who have played by the rules a fair chance to refinance at today's low rates. Not only will this bill help put thousands of dollars back into the pockets of New Jersey families who are trying to pay their bills and keep their homes, but it does so at no cost to taxpayers and will expand our economy."
On February 7th, Senators Menendez and Boxer reintroduced their legislation that they originally introduced in the last Congress. Contrary to some reports, the bill only helps people with government-backed (Fannie or Freddie) loans, not people with private loans.
The current average interest rate for a 30-year mortgage is 3.53 percent -- a rate that remains near its historical low. Nevertheless, there are nearly 12 million homeowners with loans guaranteed by Fannie Mae and Freddie Mac who could benefit from refinancing, many of whom cannot refinance at a lower rate because of unnecessary red tape and high fees. That red tape has limited competition among banks, so borrowers -- even those who are able to refinance -- end up paying higher interest rates than they would 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 expand refinancing opportunities for millions of eligible borrowers.
S. 249, The Responsible Homeowner Refinancing Act of 2013 removes the barriers preventing these Fannie Mae and Freddie Mac borrowers from refinancing their loans at the lowest rate possible. The bill would:
* Ensure that streamlined refinancing is available and consistent for all Fannie and Freddie borrowers, regardless of whether they are underwater or not
* Reduce up-front fees on refinances
* Eliminate appraisal costs for all borrowers
* Remove additional barriers to competition
* Extend HARP by one year, to allow eligible borrowers more time to access the program.
The legislation is supported by a broad array of stakeholders representing borrowers, lenders, and other experts, including the Mortgage Bankers Association, Housing Policy Council of the Financial Services Roundtable, National Association of Realtors, National Association of Home Builders, Amherst Securities, Mortgage Insurance Companies of America, Americans for Financial Reform, and the Center for Responsible Lending.
The Responsible Homeowner Refinancing Act of 2013 is also cosponsored by: Jack Reed (D-RI), Charles Schumer (D-NY), Jeff Merkley (D-OR), Kay Hagan (D-NC), Mark Begich (D-AK), Richard Blumenthal (D-CT), Benjamin J. Cardin (D-MD), Dick Durbin (D-IL), Dianne Feinstein (D-CA), Al Franken (D-MN), Kristen Gillibrand (D-NY), Tom Harkin (D-IA), Mazie K. Hirono (D-HI), Mary Landrieu (D-LA), Frank R. Lautenberg (D-NJ), Patrick Leahy (D-VT), Carl Levin (D-MI), Bernard Sanders (I-VT), Jeanne Shaheen (D-NH), Debbie Stabenow (D-MI), Sheldon Whitehouse (D-RI), and Ron Wyden (D-OR).
A Full Summary of S. 249, The Responsible Homeowner Refinancing Act of 2013 is below:
There are nearly 12 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:
Remove barriers to competition
Under HARP, lenders who want to compete with the borrower's current lender for that borrower's 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.
Guarantee equal access to streamlined refinancing for GSE borrowers
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 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 GSE borrowers will simplify the process for all involved, allowing all lenders to offer a single, streamlined program to GSE borrowers who have been paying their loans on time.
Reduce up-front fees 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 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 GSEs and taxpayers.
Eliminate appraisal costs for all borrowers
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.
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 -- 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.
Save taxpayers money
According to the CBO, the bill pays for itself through reduced default rates on GSE loans, which saves taxpayers money.
Extend the HARP Program through 2014.
With HARP set to expire on December 31, 2013, the bill would extend the program an additional year through 2014. This will give responsible homeowners a one year extension to take advantage of today's historically low rates.
List of Supporters of the Responsible Homeowner Refinancing Act:
Americans for Financial Reform
Asian Real Estate Association of America
California Association of Mortgage Professionals
California Association of Realtors
California Reinvestment Coalition
Center for American Progress
Center for New York City Neighborhoods
Center for Responsible Lending
Community Associations Institute
Consumer Federation of America
Dr. Chris Mayer, Columbia Business School
Dr. Mark Zandi, Moody's Analytics
Empire Justice Center
Empowering and Strengthening Ohio's People
Housing Policy Council of the Financial Services Roundtable
Leadership Conference on Civil and Human Rights
Leading Builders of America
Mortgage Bankers Association
Mortgage Insurance Companies of America (MICA)
National Association of Consumer Advocates
National Association of Counties (NACo)
National Association of Hispanic Real Estate Professionals
National Association of Home Builders
National Association of Mortgage Brokers
National Association of Real Estate Brokers
National Association of Realtors
National Community Reinvestment Coalition
National Consumer Law Center (on behalf of its low-income clients)
National People's Action
National Urban League
Neighborhood Economic Development Advocacy Project
New Jersey Citizen Action
New Jersey Public Interest Research Group
Small Business Majority
American Land Title Association
US Conference of Mayors