Obama Administration Introduces Three Bills to Complete Refinancing Initiative

By Liz Clinger Updated on 5/14/2012

Intended to increase homeowner refinancing, three bills introduced by Democratic Senators last week would complete Obama’s plan for refinancing which was outlined in his State of the Union Address. HUD Secretary Shaun Donovan said that the bills are a “Win, win,” indicating that he believed the bills would get bipartisan support and pass quickly.

Although the Home Affordable Refinance Program introduced in 2009 had wide success with helping close to 1 million homeowners refinance their mortgage loans in the first two years, costs and eligibility regulations kept the program from having a wider reach.

In October 2011, Obama announced his intention to have Fannie Mae and Freddie Mac work with lenders to remove some of the walls stopping more families from benefiting from refinancing their mortgages at historically low rates;.

HUD Secretary Donovan spoke at a conference Friday, May 11th on a bill introduced by Senator Dianne Feinstein last week, encouraging homeowners that don’t have a FHA, Freddie or Fannie backed loan to refinance. Donovan indicated that he wanted to expand refinancing opportunities to the 3.5 million families that show consistency by paying their bills and mortgages, but are unable to refinance because of having a private-label securities loan.

Senator Jeff  Merkley advanced a bill in which Freddie Mac and Fannie Mae cover closing costs for some homeowners who are current on their mortgages and looking to refinance with a 20-year or less loan term through HARP 2.0, in an attempt rebuild homeowner equity faster, and save an average of $30,000 a year for homeowners.

Another bill introduced last week by Senators Robert Menendez and Barbara Boxer removes a minimum requirement for mortgage loan to value through HARP.

There was some speculation by global banking and markets analyst Ed Canaday from the Royal Bank of Scotland that the Menendez-Boxer bill is less likely to pass congress. If the bill is successful, investors should understand the impact on valuation of HARP pools and prepayments. He expressed that “re-HARPing” could discourage many lenders from participating in the HARP Program, with the possibility that HARP business becoming less lucrative if prepayments rising “lead to lower prices for pools backed by HARP collateral.”