Snap Fact #195
Senators Menendez and Boxer Introduce The Responsible Homeowner Refinancing Act of 2012, a Key Part of President Obama’s “To Do List”!
On May 10, 2012 U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) introduced legislation to help millions of responsible homeowners refinance their homes at lower rates and save thousands of dollars each year – a measure that would help check off one main element of President Obama’s five point “To Do List” for Congress. 

The President has recently called upon Congress to act on a number of measures to create jobs and restore viability and security to middle class families. Included in his List is housing refinance legislation. The President underscored the importance of helping homeowners refinance when he traveled to Nevada for his campaign. 

Moody’s Investors Service, a major credit rating agency, cited by Sen. Boxer, estimates that this legislation would allow up to three million homeowners to refinance their mortgages at a much lower interest rate. This bill would put more money back in the pockets of homeowners whose budgets are already stretched thin, with many at the breaking point and about to lose their homes. Besides helping millions of hard working families, the legislation would provide some much needed stability to America’s depressed housing market at the same time.

The average rate for a 30-year mortgage is 3.83 percent – a rate that is historically low. Nevertheless, there are 17.5 million homeowners with loans guaranteed by Fannie Mae and Freddie Mac paying interest at 5 percent and higher. Many of these folks cannot refinance at a lower rate because of unnecessary red tape and high fees. That red tape has prevented competition among banks, so borrowers end up paying higher interest rates than if they were able to shop around. 

Under the Administration’s current refinancing program, HARP (Home Affordable Refinance Program), an average homeowner saves about $2,500 per year. This bill would increase the amount they could save and would likely expand the pool of eligible borrowers by several million. 

The Responsible Homeowner Refinancing Act of 2012 removes the barriers preventing these Fannie Mae and Freddie Mac borrowers from refinancing their loans. The bill would: 

• Extend streamlined refinancing for all Fannie and Freddie borrowers regardless of how much they owe compared to the value of their home.
• Eliminate up-front fees completely on refinances.
• Eliminate appraisal costs for all borrowers.
• Remove additional barriers to competition.
• Require second lien holders and mortgage insurers who unreasonably block a refinance to pay a fine.
• Pay for itself since reducing homeowners’ mortgage payments also reduces default rates and foreclosures, reducing Fannie and Freddie’s reliance on taxpayer bailouts. So the bill is good for both taxpayers and homeowners, and for communities throughout the country as well. 

The bill has been endorsed by a wide array of groups including Americans for Financial Reform, Amherst Securities (mortgage investor), California Association of Realtors, California Association of Mortgage Professionals, California Reinvestment Coalition, Center for Responsible Lending, Columbia Business School Professor Chris Mayer, National Council of La Raza, Moody’s Analytics Chief Economist Mark Zandi, National Association of Homebuilders, National Association of Mortgage Brokers, National Association of Realtors, National Consumer Law Center (on behalf of its low income clients), and Quicken Loans. 
Co-sponsors of the bill currently include: Senators Reed, Merkley, Durbin, Stabenow, Franken, Begich, and Feinstein. 

Summary of The Responsible Homeowner Refinancing Act of 2012 
Currently, there are barriers in place that keep the aforementioned 17.5 million homeowners locked into the 5 percent or higher interest rates. The Menendez-Boxer Responsible Homeowner Refinancing Act will expand opportunities to access historically low interest rates for borrowers who make their mortgage payments on time. 

To remove these barriers preventing borrowers current on their payments from refinancing their loans, the bill would: 

• Extend streamlined refinancing for Government Sponsored Enterprise (GSE) borrowers
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. 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. 
• Eliminate up-front fees completely on refinances
Up-Front fees can be $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
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
Borrowers who are current on their loans and committed to making their payments on time will get a lower rate due to the expectation of a reduced the risk of default. 
• 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 bill would enable new servicers to compete with current servicers, 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, to a fine that will be applied to the borrower’s primary loan balance. 
• Require mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay a fine
Any refinancing of a loan that makes it easier for a borrower to repay puts a mortgage insurer in a better position. 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.