By Mara Grbenick of Medill News Service
WASHINGTON (MarketWatch) — Real estate and mortgage industry leaders urged a Senate committee on Thursday to back a plan that would lower interest rates for homeowners with government-owned mortgages.
Appearing before the Senate Banking Committee, Mark Zandi, chief economist and cofounder of Moody’s Analytics, said lawmakers must act quickly because “mortgage rates are very low, and this is such a good time to refinance.”
The Responsible Homeowner Refinancing Act of 2012, proposed by Senate Democrats Robert Menendez of New Jersey and Barbara Boxer of California would benefit homeowners whose mortgages are owned by the government-supported entities Fannie Mae and Freddie Mac, and whose homes are worth less than the value of their current loan.
The legislation is part of President Barack Obama’s “to-do” list for Congress, a set of measures that hasn’t received a warm response on Capitol Hill.
“We need to fix the housing market to get the economy moving and create jobs,” Menendez said. “Refinancing should be one of the strategies [to attack the housing problem,] particularly for borrowers who are making their payments, whose interest rates on their mortgages are above today’s interest rates.”
Under the plan, homeowners could take advantage of current market mortgage interest rates, which are between about 3.875% and 4.5% versus the 5% or 6% that some homeowners now pay.
The bill would go further than the existing Home Affordable Refinance Program. Now in its second stage, HARP is “not designed to help enough underwater homeowners who are eligible and deserve assistance,” said Bill Emerson, CEO of Quicken Loans, Inc.
The Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, said there have been just 1.2 million HARP refinancings since the program’s inception in 2009 — a “disappointment”, according to Zandi.
Borrowers who would become eligible for refinancing under the proposal would save on average between $2,500 and $3,000 annually, according to industry experts. This could help prevent bankruptcy filings and the impact on local communities would be “significant,” said Moe Veissi, president of the National Association of Realtors.
The legislation didn’t get an entirely hostile response from Republicans. Sen. Robert Corker, a committee member and Tennessee Republican, said he is “open to looking at this” and that he hopes there will be a mark-up on the bill.
In the interest of streamlining the process while the interest rate environment is favorable, witnesses said it would be an appropriate compromise to target loans originated prior to June 1, 2009, rather than through the proposed extended period of July 1, 2010.
If the bill does not pass, “roughly 2.5. million to 3.5 million refinancings would still happen” in the existing HARP, Zandi said.
Estimates from the Congressional Budget Office show that bill would pay for itself because of reduced default rates.
The Federal Reserve is now the largest mortgage-backed securities investor with $1.25 trillion in assets, Zandi said. Mortgage-backed securities investors continue to receive interest payments when borrowers are able to pay their loans, and “one might argue no bigger beneficiary from government policy throughout the financial crisis than mortgage securities investors,” Zandi said.