Senate Democrats are re-introducing legislation that would enhance the Home Affordable Refinance Program by increasing competition among lenders, eliminating the distinction between borrowers with greater or less equity, and lowering fees for borrowers with more equity. The bill would also require changes to the appraisal process and reduce documentation requirements.
The bill, S. 3522 – The Responsible Homeowner Refinancing Act of 2012, was re-introduced in the Senate on Monday.
An announcement indicated that several groups — including the Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders and the Center for Responsible Lending — support the legislation.
Sen. Barbara Boxer (D-Calif.), who is sponsoring the bill with Sen. Robert Menendez (D-N.J.), claims that in addition to lining the pockets of borrowers, the legislation will reduce foreclosures for Fannie Mae and Freddie Mac, help the housing market and strengthen the economy.
Nearly 13.5 million borrowers who are in loans owned or guaranteed by Fannie or Freddie could benefit from a refinance, according to a joint announcement from Boxer and Menendez.
The bill would eliminate disparity between lenders that currently service the loan and competing lenders that currently face stricter underwriting criteria and greater risk. By increasing competition, HARP pricing would be more favorable. The statement cited an Amherst Securities Group study that found interest rates on HARP transactions are around 50 basis points worse than rates on non-HARP 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,” the statement said.
While HARP 2.0 distinguishes between borrowers with loan-to-value ratios greater or less than 80 percent, the legislation would eliminate such a distinction — giving all borrowers the same access to HARP regardless of their equity level. Such a provision would eliminate the penalty for borrowers who have paid down their loans while giving lenders a single set of rules to work with.
Borrowers with more equity would also benefit from a provision that would prohibit Fannie and Freddie from charging up-front fees to refinance mortgages they already guarantee. The fees, which can amount to $4,000 on a $200,000 loan, were already reduced for higher-risk low- and negative-equity borrowers.
The bill addresses loans secured by properties that can’t be appraised through an automated valuation model because of an inadequate number of available comparable properties by requiring Fannie and Freddie to develop additional streamlined alternatives to manual appraisals. Such a move would eliminate the need for slow and costly manual appraisals.
Another provision would eliminate the need to verify employment and income. The legislators noted that qualified HARP borrowers have already proven their ability to repay the loan. In addition, Fannie and Freddie already retain the loan risk — which would be reduced because of lower payments.
The Congressional Budget Office has already determined that the bill would pay for itself through lower default rates, according to the announcement.
HARP was originally introduced in March 2009. Program enhancements announced in October 2011 were dubbed HARP 2.0 and led to a rush of new activity.
