Thursday U.S. Senators Robert Mendez (D-NJ) and Barbara Boxer (D-CA) reintroduced legislation dubbed HARP (Home Affordable Refinance Program) 3.0.
“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. “We need to do this before interest rates go up again.
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 stimulate our economy.
Making these reforms should be, as my Republican colleague Senator Corker said last year, a ‘No-Brainer’, and I urge my colleagues to do so immediately.”
Calling the bill a “win-win,” Senator Boxer states that the bill will save homeowners money, reduce foreclosures for Fannie Mae and Freddie Mac and continue building housing market momentum.
According to the Senators’ news release:
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 bill will:
• 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.
One concern that I have about the new program is that it doesn’t change the qualification date for the mortgages being refinance. Currently, if a Fannie Mae or Freddie Mac loan was acquired after May 31, 2009, it is not eligible for the refinance program.
There are a large number of homeowners that could benefit for refinancing at the lower interest rate but cannot do so due to lack of equity, the thing HARP is there to assist with. If this date is not moved, then those homeowners will still not be able to participate in the program.
About the author: Fred Chamberlin is a senior loan officer with Guild Mortgage Company in Oak Harbor. He has been in the mortgage origination business for over 20 years and in the lending business for over 30 and authors a number of mortgage related blogs.
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