New Jersey US Senator Robert Menendez is joining California Democrat Barbara Boxer to introduce legislation which is aimed at giving struggling homeowners a chance to refinance at lower rates and save money.

During a press conference with Senator Boxer, Menendez said the legislation is part of President Obama’s “to do list” for Congress to help the economy and Menendez says the legislation will help million of responsible homeowners break through barriers that are currently in place.

The Bill, titled The Responsible Homeowner Refinancing Act of 2012, would allow homeowners who make regular payments but have interest rates higher than the national average to refinance to take advantage of the historic lows. He notes the bill would be a “win-win-win” since it would allow homeowners to refinance at low rates, while giving new rates for mortgage lenders, and strengthening communities and ultimately the economy.

“If I was patching up that roof that’s been leaking on my home because I couldn’t afford to replace it, I’d have the opportunity to replace it. That means I’d hire somebody, which means we’d have a beneficial ripple effect.”

He expects the bill to receive bipartisan support.

Currently the average rate for a 30 year mortgage is 3.84 percent, however Menendez says 17.5 million homeowners have loans with Fannie Mae and Freddie Mac with interest above five percent. Saying the bill would be a “lifeline for those facing insurmountable obstacles, odds, and red tape.”

What The Bill Would Entail

Extend streamlined refinancing for GSE borrowers

FHFA recently expanded HARP eligibility to underwater borrowers and made several important changes to streamline the underwriting process and reduce the costs of refinancing.  As currently structured, however, these reduced costs would apply only to HARP-eligible borrowers with less than 20 percent equity; Freddie Mac actually imposed new barriers on higher equity borrowers, making their ability to refinance more difficult.

This bill would ensure that all GSE borrowers who are making their payments have the same access to simple, low-cost refinances, regardless of loan to value.  Not only is this an issue of fairness, but applying these measures to higher equity borrowers makes good business sense.  Allowing banks to have a single set of rules for all GSE borrowers will simplify the process and make it easier and more automatic for servicers to market and promote this program.  The bill also extends the date of eligibility for borrower participation an additional year, through May 31, 2010, the point at which interest rates remained steadily under 5%.

Eliminate up-front fees completely 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 odd situation where borrowers with high levels of equity seeking to refinance could face steeper costs than borrowers with no equity.  The GSEs already bear the risks on these loans; yet this policy actually makes it less likely that borrowers will be able to take advantage of the low rates and increases the chance they will eventually default.  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.

Eliminate appraisal costs for all borrowers

Even with the GSE’s expanded use of Automated Valuation Models, borrowers who happen to live in communities without a significant number of recent home sales will have to get a manual appraisal for a HARP refinance.  This bill requires the GSEs to develop and allow additional streamlined alternatives to manual appraisals to determine the value of a property for which a HARP refinancing is sought.  This will eliminate a significant barrier that will reduce cost and time for borrowers and lenders alike.

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 – despite any loss of income or home value.  Lowering the interest rate for these borrowers increases the odds that they will be able to continue making their payments and reduces the risk of default faced by the GSEs.  By eliminating employment and income verification requirements, this bill further streamlines the refinancing process and allows lenders to send eligible borrowers a pre-approved application packet that they need only sign and return.  Since taxpayers already own the risk of these loans, it makes no sense to impose these requirements that could prevent borrowers from getting lower payments.

Remove additional barriers to competition

Under HARP, lenders looking to compete with the current servicer of a borrower’s loan continue to face barriers to participating in the program. This lack of competition means higher prices and less favorable terms for the borrower. 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.

Require second lien holders who unreasonably block a refinance to pay a fine

The bill would require lenders who do not permit a second lien to be re-subordinated to a refinanced loan, as long as that refinanced loan does not increase the risk faced by the second lien holder, to a fine that will be applied to the borrower’s primary loan balance.  Many borrowers have been prevented from refinancing because their second note-holder has refused to re-subordinate their lien, even though reducing payments on the first mortgage would make it more likely the borrower would be able to continue making payments on the second, putting the second lien holder in a better position.

Require mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay a fine

As with second lien holders, any refinancing of a loan that makes it easier for a borrower to repay puts a mortgage insurer in a better position.  Following the recent changes to HARP, all mortgage insurers except United Guaranty, a subsidiary of TARP-recipient AIG, have agreed to voluntarily and automatically carryover existing coverage to the refinanced loan.  Approximately 15 percent of all GSE loans with mortgage insurance receive their coverage from United Guaranty and are effectively excluded from refinancing.  This bill would level the playing field by requiring mortgage insurers who refuse to transfer coverage to refinanced loans to pay a fine that will be applied to the borrower’s primary loan balance.

Bill Pays for Itself

According to preliminary estimates by the CBO, the bill pays for itself through reduced default rates on GSE loans, which saves taxpayers money and reduces the amount of any bailouts.  It does NOT increase guarantee fees.



He notes while the recent changes to the Homeowner Affordable Refinancing Program (HARP) have helped, they weren’t enough.

“They left barriers in place that continues to keep millions of homeowners from getting a better deal on their mortgages and this bill changes that.”

Specifically citing things like having a second mortgage or mortgage insurance, overly high upfront fees, or having an unfavorable appraisal currently prevent refinancing for many people, and the bill would take care of that.

“Didn’t get all of the paperwork right, well you didn’t have the right document or sign on the right line? This bill takes care of that. Some homeowners are only able to refinance with their current lender essentially held hostage, keeping them in a high interest rate loan, well this bill frees those homeowners.”

Most importantly, Menendez says this bill will cost taxpayers nothing.

“In fact testimony in front of my subcommittee would suggest that it would likely save tax payers billions reducing any bailout consequences at Fannie and Freddie.”