Lawmakers working to streamline mortgage refinancing for homeowners

Momentum is building in the Senate behind a bill that would streamline refinancing for homeowners as lawmakers work toward an agreement that could lead to passage by the August recess. 

Time is running short as Senate Banking Committee members try to reach a deal on amendments that would ensure the legislation remains narrowly tailored in making changes to the Home Affordable Refinance Program (HARP). The streamlined bill aims to help homeowners who are current on their payments and have loans through Fannie Mae and Freddie Mac rework their mortgages. 

{mosads}”Ranking Member Shelby and I are continuing to discuss a way forward on housing refinance legislation,” Banking Chairman Tim Johnson (D-S.D.) said this week. 

“We have worked together in the past markups to keep amendments to those related to the underlying bill,” he said. 

“And I hope that my colleagues will agree to continue this approach.”

The concern is that while Republicans and Democrats on the panel have expressed support for the core function of the measure, some lawmakers, of late, have expressed an interest in moving forward on an overhaul of government-controlled mortgage giants Fannie Mae and Freddie Mac. 

An amendment of that magnitude would likely derail the measure indefinitely, especially in an election year where budget, taxes and other expiring measures are expected to dominate the shrinking legislative landscape before the November elections. 

In March 2011, Treasury Secretary Timothy Geithner called on Congress to overhaul Fannie and Freddie within two years but no progress has been made on that front. 

The refinancing bill has broad industry support, as well, although some housing experts remain concerned about its effects on the housing market’s recovery. 

“HARP 2.0, without any further changes, is kicking in strong and we have the best refinancing wave since 2009,” Anthony Sanders, a real estate professor at George Mason University, told The Hill. 

“But we are in uncharted waters. Taking the safeties off HARP 2.0, when HARP 2.0 is already working, seems incredibly reckless,” he said.

“It simply increases the risk of the refinancing. That is why Fannie Mae and Freddie Mac have been timid about going along with HARP 2.0,” Sanders said. 

The mortgage refinancing index rose 19.17 percent last week, the highest level since the 2009, while refinancing represented 79 percent of all mortgage applications.

Sanders considers the bill an election-year stunt saying, regardless of who wins the presidency, “I doubt if we will hear anything about HARP again.”

Housing and Urban Development Secretary Shaun Donovan has stressed that nationwide refinancings are up more than 100 percent in March from a year earlier and he expects the numbers to continue rising.

In October, housing officials revamped HARP to help underwater homeowners modify their loans but Donovan has argued for Congress to go further and shore up the program with this legislation authored by Democratic Sens. Robert Menendez (N.J.) and Barbara Boxer (Calif.). 

The measure also is a component of President Obama’s congressional to-do list. 

Dean Baker, co-founder of the Center for Economic and Policy Research, called the bill “mostly positive” but questioned provisions that would slash fees paid to banks. 

“I’m not sure I understand the logic of banning fees for refinancing, it does cost the banks money,” Baker told The Hill. 

“If the point is that they want people to go further underwater by rolling in these fees, that is somewhat problematic,” he said. 

While Donovan and other advocates have argued that the bill will help the housing market, Baker doesn’t think the measure will have much effect. 

The Boxer-Menendez bill prohibits Fannie and Freddie from charging risk-based fees to refinance any loan they already guarantee, eliminates appraisal costs, removes barriers to competition, provides an opportunity to save taxpayer funding by reducing defaults and foreclosures, and permits the mortgage giants to charge up to 10 additional basis points over the existing ongoing guaranty fee for the refinanced loans only to make up for any losses. 

Meanwhile, Americans for Prosperity sent a letter to senators on June 1 expressing opposition to the bill saying a better solution “would be for Congress to quickly resolve and wind down Fannie and Freddie, allowing private capital back into the market and restoring confidence.”

“This would also ease the burden on American taxpayers: the two mortgage giants have gobbled up $187 billion in bailouts so far and have a near-certain need for more in the future,” wrote Adam Berkland federal affairs manager of AFP. 

Mark Zandi, chief economist with Moody’s Analytics, told The Hill he still supports the measure, especially with mortgage rates well below 4 percent there is no “better time to facilitate more refinancing activity.”

He has suggested that Congress move quickly to take advantage of low interest rates while saying that even if policymakers fail to act, the revamped HARP program could still lead to 2 million to 3 million more refinancings that would bolster the gradually improving housing market.

Donovan has told lawmakers that there is a small window of opportunity to help potentially millions of homeowners refinance their loans into lower interest rates, which currently are at historic lows. 

“While we have made substantial progress and the administration has taken action administratively to make millions of Americans eligible for lower interest rates, more needs to be done,” Donovan said last month. “But these additional steps require Congress to take action.”