Mortgage refinancing rises to top of White House agenda

Mortgage refinancing takes center stage Friday afternoon as President Obama heads to Nevada, ground zero for the housing crisis and a swing state in the presidential campaign.  

Obama will make a stop in Reno on his way back from a West coast Campaign trip to tout the benefits of breaking down barriers to refinancing so homeowners can shift into lower interest rate loans in an effort to boost the battered housing market and the broader economy. 

While Nevada has consistently led the nation in foreclosures, the state also is well ahead in refinancing underwater loans, which represent 60 percent of all mortgages in the state, mostly caused by a 52 percent drop in home prices during the housing bust. 

The state has posted a nearly 240 percent increase in refinancing since the Obama administration introduced changes to the Home Affordable Refinance Program (HARP) last fall, and Obama and lawmakers see greater potential as more barriers are removed. 

While those changes have boosted refinancing rates in some of the hardest-hit states — Arizona (181.4%), Florida (125.9%) and Michigan (125.2%) — Donovan said legislation is needed to further cut red tape and help millions of additional borrowers who are underwater on their loans. 

As Congress and the White House have failed to implement housing programs that have accelerated the housing market's healing, defaults have remained at record highs and taxpayer support of government-controlled mortgage giants Fannie Mae and Freddie Mac has reached nearly $190 billion. 

The president will meet with a family who took advantage of HARP 2.0, enabling them to refinance their underwater mortgage into a lower interest rate, allowing them to put some of their savings into reducing their mortgage principal and help rebuild equity. 

Housing and Urban Development Secretary Shaun Donovan said the administration is backing three bills, all introduced this week by Senate Democrats, that could nix the final hurdles for borrowers who have kept up with loan payments but have been unable to refinance. 

Democratic Sens. Bob Menendez (N.J.) and Barbara Boxer (Calif.) are proposing a measure that makes changes to the HARP by streamlining refinancing for homeowners who are current on their payments and have loans through Fannie Mae and Freddie Mac.

Menendez and Boxer said Thursday that their bill could help at least 3 million homeowners — Boxer thinks many more — who are stymied by high fees or unfavorable appraisals that halt a refinancing. 

"There's no one solution, so we have to attack the problem from different angles," Menendez told reporters on Thursday. 

Menendez, chairman of the Senate Banking's housing subcommittee said he expects the legislation to go through the panel, Republicans have expressed concern it may go straight to the floor to lock in broad consensus. 

Boxer said that while the legislation could gain enough support to get through Congress this year, she urged Edward DeMarco, acting director at the Federal Housing Finance Administration, to take the steps on his own. 

"DeMarco can order this done," Boxer said. 

Donovan said Friday that DeMarco could institute some of the changes in the Boxer-Menendez bill but the agency's evaluation of the legislation may take too long and homeowners could miss out on record-low interest rates. 

He said he will continue to work with FHFA but emphasized that there is as sense of urgency. 

Freddie Mac reported this week that rates for 30-year and 15-year fixed mortgages fell to new record lows this week.  

The Menendez-Boxer bill eliminates the need for a manual appraisal, which can cost up to $1,000, increases competition among lenders for refinancing business, and helps borrowers with equity who have been unable to rework their loans because they may have a second lien or home equity line of credit. 

Sens. Jeff Merkley (D-Ore.) and Dianne Feinstein (D-Calif.) also have put forward legislation to remove other barriers and expand refinancing opportunities.

The Merkley proposal would allow underwater borrowers whose loans are not government-backed to refinance into new mortgages with the Federal Housing Administration (FHA). The bill would give all underwater homeowners a chance to apply their savings from refinancing into rebuilding their equity, require Fannie and Freddie to pay closing costs and require loan terms of no more than 20 years. 

The Feinstein bill would tackle another problematic area and provide refinancing for homeowners with loans on their primary residence that aren't backed by the FHA or Fannie or Freddie, opening up refinancing to 3.5 million homeowners. To be eligible, borrowers must be current on their loans, have minimum credit scores and have loans no larger than the current FHA limits. Although the measure would raise guarantee fees, Donovan said the administration has not locked into a pay-for for the legislation. 

"We're open to looking at alternatives if this is one that Congress believes isn't acceptable," he said on Friday.

Menendez and Boxer said the three bills would likely be taken up separately and not packaged together despite the Senate's difficulty in moving legislation. 

The lawmakers said there is growing business support for their bill and they are in talks with their Republican colleagues to build support. 

So far, there is no companion legislation in the House, and it is uncertain at this point whether Republican leadership in the lower chamber would be willing to consider any of the bills.