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MORTGAGE REFINANCE

Congress Unlikely to Pass Mortgage Refinance Plan without Heavy Public Pressure

Written By:
February 14, 2012 at 10:33 PM



Calling all homeowners - if you have a standard mortgage (Fannie Mae or Freddie Mac does not own or insure the loan,) have not missed a mortgage payment in the last six months, or missed one payment in the six months prior, and have a minimum credit score of 580 - President Obama's plan wants to refinance your home.

If the administration can somehow find a way to get this last housing proposal through Congress, an estimated 3.5 million homeowners who hold private mortgages become eligible to refinance their current loans, to low interest rates mortgages hovering around 4%. The Federal Housing Administration (FHA) will administer the new program and guarantee the loans.

Beyond the conditions outlined above, underwriting standards will only require lenders to verify borrowers’ employment. In addition, the FHA’s new program proposal eliminates appraisals and the need for borrowers to submit tax returns.

Assessing the Chances for Each Component

Refinancing private mortgages is just one aspect of the plan, and stated, it will be difficult to pass this provision through Congress. However, the FHA and FHFA only need to exercise its current authority to implement other parts of the proposal.

Fund Refinancing Plan with Bank Fees: Homeowners who have an underwater mortgage issued by a private lender have little chance of receiving any assistance. Congress would have to agree to tax the banks. The institution’s size and the financial risk associated with its activities determine the tax rate.

From the outset, pundits have dismissed this component of the new mortgage-refinancing plan, saying, “It will never become a reality.” Historically, Congress has demonstrated an inability to levy a tax on banks.

Streamline Federal Agency Refinances: The administration does not require Congressional approval to simplify mortgage refinancing for borrowers. Homeowners who are current in their mortgage payments will qualify to take advantage of low interest rate loans. The FHA must waive certain underwriting requirements.

The FHA will not count these waivers against a lender’s delinquency performance ratings, during audits. This should entice more lenders mortgage lenders into maximizing the number of borrowers who we can come eligible for FHA refinancing loans.

In addition, other federal departments with homebuyer programs, such as the United States Department of Agriculture (USDA), have directions to develop strategies, which streamline their current mortgage refinancing processes. The USDA insures more than 130,000 homes, located outside of metropolitan communities across the country.

Refinance GSE Loans to Shorter Terms: If the White House can get the Federal Housing Finance Administration (FHFA) to agree, hundreds of thousands of homeowners, who have underwater mortgages with Fannie Mae and Freddie Mac, would refinance into loans with shorter periods and lower interest rates.

This proposal also eliminates closing costs for many homeowners who refinance into 15-year or 20-year mortgages. Reducing the amortization periods would leave borrowers with roughly the same monthly mortgage payments, but pays down loan balances and rebuilds equity faster.

Enact “Bill of Right: This proposal seeks to put more responsibility on loan servicers to provide immediate assistance to home owners who show signs of financial difficulties. Lenders must offer these borrowers loan modifications or forbearance agreements to help them avoid foreclosure.

Servicers must improve customer service by offering clients “continuous points of contact.” Customer service representatives will work with clients and have full access to their account information.

Servicers will also establish a review process for homeowners denied mortgage modifications. The recent mortgage fraud settlement, between the state and federal negotiators and the five largest servicers, supports the successful enactment of this measure.

Conclusion

A number of housing market analysts and advocates believe that more refinancing activities represent good news for homeowners and the economy. According to the chief economist of Moody's Analytics Mark Zandi, more than 30 million homeowners are current with their mortgage. Refinancing of these mortgages would save homeowners $20 billion in the first year. This figure doubles the following year. Zandi says, “Homeowners' extra cash will quickly find its way into the economy."

Some people think Republicans may find it to their advantage to support the mortgage-refinancing program. Key election states that the GOP depends on Nevada, Arizona and Florida, rank in the top four states with the highest foreclosure rates.

Homeowners who have underwater mortgages, and will benefit from this mortgage-refinancing plan, may want to give their congressperson a call and urge them to find a way to pass this plan.

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