The Responsible Homeowner Refinancing Act of 2013
President Barack Obama delivers the State of the Union address at the U.S. Capitol in Washington, D.C., Feb. 12, 2013. (Official White House Photo by Chuck Kennedy)
In his State of the Union Address on February 12, 2013, President Obama called on Congress to make it easier for families to refinance their mortgages. Specifically, the President urged Congress to pass refinancing legislation being sponsored by Sen. Robert Menendez (D., N.J.) and Sen. Barbara Boxer (D., Calif.) that would waive certain fees that the Federal Housing Finance Agency (“FHFA”) had reduced but not eliminated entirely for Home Affordable Refinance Program (“HARP”) borrowers making payments on mortgages held by Fannie Mae and Freddie Mac.
Also, while the bill, “The Responsible Homeowner Refinancing Act of 2013” would not create a new refinancing program, it would reduce certain demands placed on lenders that refinance loans they don’t currently manage, including eliminating employment and income verification requirements to refinance, and extend the HARP program for one more year, to the end of 2014.
Significantly, the bill applies only to borrowers with loans held by Fannie Mae and Freddie Mac, not to borrowers with private loans. Nonetheless, the legislation appears to enjoy broad industry and consumer support, including from the National Association of Realtors, the Mortgage Bankers Association, the National Association of Home Builders, the Center for Responsible Lending, and the Consumer Federation of America.
Despite historic low mortgage rates, hopeful homeowners are still being rejected
President Obama argued in his address to the nation that the bill was needed because, “even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who have never missed a payment and want to refinance are being told no.” The average interest rate for a 30-year fixed-rate mortgage hit 3.31% in November 2012, the lowest rate on records going back to 1971 and has remained near historic lows for months. It was at 3.53% in the week ending February 14.
By the Obama Administration’s calculations, the average homeowner could save $3,000 a year by refinancing at today’s low rates. An analysis by the Congressional Budget Office released in September 2011 put the savings at closer to $2,600 per borrower, with first-year gross cash savings from reduced mortgage payments of approximately $7.4 billion.
This is similar to the conclusion reached by Mark Zandi, chief economist at Moody’s Analytics (and a former advisor to 2008 Republican Presidential nominee John McCain,) who estimated that the proposed legislation would result in 2.9 million more refinancings for Fannie/Freddie borrowers, which would help borrowers save a combined $7.3 billion annually in mortgage payments. The analyses by both the CBO and Zandi were referenced in a September 2012 analysis done by the Congressional Research Service.
Whether the bill will become law remains unclear. The legislation was initially proposed last year but stalled in Congress. With its reintroduction this year by Sens. Menendez and Boxer, the bill will likely come up for a Senate vote later this spring, but it is less certain what will happen if it goes to the Republican-controlled House of Representatives.
For the time-being, the uncertainty in Washington, D.C. surrounding various budget-related issues will likely keep mortgage rates low, even if many homeowners remain unable to take advantage of them. This is because U.S. Treasury and mortgage bonds are generally perceived as the safest investment around when investors are anxious about the economy.