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Bill would help homeowners underwater on their mortgages

"Fannie an Freddie should do this on their own and not waste one more minute of aggravation for these people," Boxer said.

Boxer said she'll "start pushing hard" to move the legislation, which was introduced earlier this year, that she argues will help stabilize the struggling housing market and fragile economy. 

The legislation is expected to lead to up to 54,000 fewer defaults and produce a savings of up to $100 million for Fannie Mae and Freddie Mac, Boxer said. 

In addition, the savings from refinancing could lead to an additional $2.2 billion injected into the economy, she said. 

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Housing and Urban Development Department Secretary Shaun DonovanShaun L. S. DonovanFive things to watch in the New York City mayoral race Poll finds Yang with big lead in NYC mayor's race Yang leans into outsider status in run for NYC mayor while critics question experience MORE and Treasury Secretary Timothy Geithner have expressed support for removing refinancing barriers for those homeowners who have consistently paid their mortgages, she said. 

"Everyone agrees regardless of party and position that the economy can't fully recover until housing recovers," she said. 

She also urged the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, to use its existing authority to eliminate refinancing obstacles.

Boxer said homeowners who are underwater on their mortgages can be required to pay "exorbitant fees" to refinance, making it too expensive. 

Fannie Mae and Freddie Mac offer refinancing programs to certain homeowners but participation has been low because of high, risk-based fees required up front to refinance their loans. Fees can be as high as 2 percent of the loan amount, or an extra $4,000 on a $200,000 loan, according to Boxer. 

"These fees can discourage borrowers from refinancing at a lower rate, making it more likely that they will eventually default," she said. 

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The bill eliminates risk-based fees on loans that Fannie and Freddie hold, removes refinancing limits on underwater properties, makes it easier for borrowers with second mortgages to participate in refinancing programs and requires that borrowers be offered of a fair interest rate, comparable to others in good standing.  

The bill should cost have little to no cost, depending on the defaults avoided and the amount of lost interest income for investors, said Mark Zandi chief economist at Moody’s Analytics.

"This is a very efficient cost-effective way to help address the housing problem," Zandi said. "There are still significant problems the economy faces so we should do quickly when economy needs help the most." 

Zandi, who expressed support for the legislation, saying the ongoing foreclosure crisis is the "most significant" threat to the fragile economic recovery and the measure should help stop possible foreclosures. 

The legislation is important to distressed regions of country -- Florida, Arizona, Nevada, California and parts of the Midwest -- where the "economy is still lagging and where the recovery hasn't gain traction," Zandi said. 

The measure could provide a boost where other federal efforts to stem the foreclosure crisis have fallen short, helping speed up the pace of refinancing activity while interest rates are at historic lows, he said. 

Ron Phipps, president of the National Association of Realtors, said the bill has a "huge catalytic potential" for people who are upside down on their loans with few options to refinance. 

"This bill should be very stimulating to the economy," he said. 

Zandi said the bill doesn't raise any concerns that the markets would react negatively. 

"I don't think it will be disruptive at all to the market," he said. "You're correcting what you might call a market failure." 

The legislation has also been endorsed by the National Consumer Law Center, the National Association of Mortgage Brokers, the California Association of Realtors, the California Association of Mortgage Professionals, William Gross, managing director and co-CIO of PIMCO, and housing economist Thomas Lawler.