New Bill Aims to Make Refinancing a No-Brainer

Have you wanted to refinance, but don’t have the money for closing costs? Or feel the costs involved may not justify the lower rate?

Some of you must, considering the fact that 17.5 million homeowners with Fannie Mae and Freddie Mac-backed loans still have mortgage rates north of 5%.

Well, a new bill being floated by U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) aims to put all your concerns to rest, for good.

Responsible Homeowner Refinancing Act of 2012

The so-called “Responsible Homeowner Refinancing Act of 2012” will make refinancing a no-brainer for virtually everyone eligible.

So why is it so obvious now? Well, for one, there won’t be any out-of-pocket costs. And we’re not talking about a higher mortgage rate as a result via a no cost refinance.

On the contrary; the bill ideally increases competition by knocking down barriers in order to push mortgage rates even lower for those eligible.

It’s basically an extension of HARP II, which while pretty flexible, hasn’t done as much as the government has liked.

For the record, to be eligible, you have to be current on your mortgage payments. Hence the responsibility thing…

Streamlining the Process

The bill would essentially make HARP even more attractive by streamlining refinancing for all Fannie and Freddie borrowers, regardless of their loan-to-value ratio.

So you wouldn’t need to come up with all the loan documentation normally required for a refinance, such as income and employment verification, which could hinder the process and make refinancing more expensive.

[What is a streamline refinance?]

The general feeling is that the danger to the GSEs is already present, so lowering mortgage rates on existing loans backed by Fannie and Freddie would do nothing more than reduce default risk.

At the same time, all lenders could compete for HARP 2.0 refinances thanks to the across-the-board streamlining rules, meaning lower rates and terms for those who qualify.

In other words, a lender that has nothing to do with the loan in question can streamline it as well, so borrowers can shop for the lowest rate.

However, servicers would be able to send out pre-approved letters to those eligible, which borrowers would only need to sign and return

The bill would also eliminate upfront costs completely, including costly appraisal fees, which are semi-pointless given the fact that most homeowners are clearly underwater.

Additionally, it would extend the date of eligibility for borrower participation in HARP an additional year, through May 31, 2010.

So those who received loans more recently (or even refinanced not too long ago) could refinance again without a lot of hassle.

Finally, the bill would impose fines to second mortgage holders who refused to re-subordinate their liens.

And mortgage insurers who did not automatically carry over existing coverage would face similar penalties.

Again, the general thinking is that the loans will be lower risk post-HARP refinance, so it wouldn’t make sense not to re-subordinate or extend insurance coverage.

Who’s Paying for All This?

Well, the Senators point to preliminary estimates by the Congressional Budget Office, which pointed to savings of more than $23 billion for Fannie and Freddie via lower mortgage defaults.

In other words, the program pays for itself via much better loan performance.

And as we all know, it is taxpayers who are on the hook for the pair’s losses, so the bill reduces the need for another bailout.

Apparently it will not increase guarantee fees, which are paid by the banks to Fannie and Freddie to guarantee the mortgages. This would obviously translate to higher borrowing costs.

The increased refinancing should also spur the economy, with more money available for things like home repairs and overall everyday spending.

Now the government just has to do something about all those private label mortgages.

(photo: erix!)