‘U.S. Senate Bill 3085 is the rumored HARP 3.0


Rumors of a HARP 3.0 were not greatly exaggerated.

The rumors have panned out as legislation called the “Responsible Homeowner Refinancing Act of 2012.” If passed, the act would make it easier and less expensive to refinance under the Making Home Affordable initiative known as the Home Affordable Refinancing Program (HARP).

The act could bring relief to millions of more homeowners than the current version, known as HARP 2.0. HARP 2.0 was an improvement over the original HARP launched back in 2009.

Also see: “The HARP Archive” on DeadlineNews.Com for the latest HARP news.

Legislation authors U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) say there are 17.5 million homeowners holding Fannie Mae and Freddie Mac (government supported enterprises, or GSEs) loans (the only loans eligible under the program) who could benefit because those homeowners have mortgages with interest rates above 5 percent.

More HARP 3.0 legislation
U.S. Senators Jeff Merkley (D-OR) and Dianne Feinstein (D-CA) also recently introduced legislation designed to improve HARP and help more homeowners refinance to cash in on low interest rates.Merkley’s proposal, the “Rebuilding Equity Act”is designed to help homeowners refinance to a shorter term loan, but keep the same payments. For homeowners who refinance into a 20-year loan term or shorter, Fannie Mae or Freddie Mac would cover the closing costs, a benefit averaging $3,000 per homeowner.”This is simple. If homeowners keep paying the same monthly payment on a shorter mortgage when they refinance, they’ll be back above water more quickly,” Merkley said.

Merkley introduced Senate Bill 2909 on May 8. Text of the legislation was not available May 15.

The Feinstein bill, “Expanding Refinancing Opportunities Act of 2012″ would offer Federal Housing Administration (FHA)-backed refinancing for homeowners with loans on their primary residence that aren’t backed by the FHA or Fannie Mae or Freddie Mac.

“While homeowners with federally-backed loans are already able to refinance, many more homeowners cannot renegotiate their loans because they are privately held. This is not fair, it leaves families struggling to stay in their homes and further depresses the housing market,” Feinstein said.

To be eligible, borrowers must be current on loans that do not exceed 140 percent of their home’s value, have minimum credit scores and have loans no larger than the current FHA limits.

Feinstein introduced Senate Bill 3047 on May 9. Text of the legislation was not available May 15.

Interest rates for 30-year, and 15-year fixed-rate mortgages came in at record lows, averaging 3.83 percent and 3.05 percent, respectively, the week ending May 10, according to Freddie Mac.

Also on May 10, Menendez and Boxer filed Senate legislation for HARP 3.0, U.S. Senate Bill 3085. The legislation’s next stop is the Senate Committee on Banking, Housing, and Urban Affairs, provided the committee’s chair approves the measure for a hearing.

Putting an end to rumors, but not quite living up to all of them, here’s an inside look at the “Responsible Homeowner Refinancing Act of 2012.”

If passed into law the act would:

Extend streamlined refinancing to additional GSE borrowers

GSEs’ overseer, the Federal Housing Finance Agency, recently improved HARP to make more homeowners eligible, but newly-reduced costs apply only to HARP-eligible borrowers with less than 20 percent equity. Freddie Mac imposed stiffer requirements.

This bill would ensure that all GSE borrowers, who are making their payments on time, have the same access to simple, low-cost refinances, regardless of loan to value. A single set of rules also would simplify the process and make it easier and more automatic for servicers to market and promote HARP. The bill would also make HARP available to those with loans made prior to June 1, 2010. Right now HARP is only for those with loans made prior to June 1, 2009.

Completely eliminate up-front fees

In HARP 2.0, GSEs lowered fees on refinancing HARP loans with less than 20 percent equity, but the bill will prohibit GSEs from charging upfront fees on any HARP refinance for a loan they already guarantee. Fees can amount to $4,000 on a $200,000 loan.

Eliminate appraisal costs for all borrowers

GSEs save money by using Automated Valuation Models to determine home value, but some borrowers are still saddled with appraisal costs of $350 or more. Removing appraisal costs would remove another financial barrier to HARP refinances.

Streamline refinancing application process

HARP borrowers must be current on their mortgage payments and have no late payments for the last six months and no more than one late payment in the last 12 months, in both cases, prior to applying for the program. Those who qualify have already proven they are low risk. The act would reward them by eliminating employment and income verification requirements to further streamline the refinancing process. A streamlined process would encourage lenders to send eligible borrowers a pre-approved application packet they would only need to sign and return.

Remove additional barriers to competition

Lenders looking to compete with the current loan servicer face anti-competitive barriers that create higher prices and harsher terms for the borrower. To unlock competition, the act would direct GSEs to require the same streamlined underwriting and associated representations and warranties for new servicers as they do for current servicers.

Require second lien holders, who unreasonably block a refinance, to pay restitution to borrowers

Second-lien holders often prevent borrowers from refinancing by refusing to re-subordinate their lien. The bill would force these refinance-blocking second lien holders to pay restitution to borrowers, provided the refinanced loan would not increase the risk faced by the second lien holder.

Require mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay restitution to borrowers

Similarly, mortgage insurers who refuse to transfer insurance coverage to refinanced loans, would be forced to likewise pay restitution for future such actions.

According to the legislation’s summary, all mortgage insurers except United Guaranty, a subsidiary of TARP-recipient AIG, have agreed to voluntarily and automatically carryover existing coverage to the refinanced loan. United Guaranty insures approximately 15 percent of all GSE loans with mortgage insurance, according to the legislation.

The legislation says the law would pay for itself through reduced default rates on GSE loans.

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