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The Responsible Homeowners Refinancing Act of 2012 Pushes for HARP 3.0

By Broderick Perkins | May 11, 2012

It's not the HARP 3.0 rumored to be in the pipeline, but the Responsible Homeowners Refinancing Act of 2012 would boost HARP 2.0 and provide additional refinance relief for households struggling to make the mortgage payment.

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Sen. Robert Menendez (D-NJ) and Sen. Barbara Boxer (D-CA) were scheduled to introduce legislation this week designed to remove barriers faced by refinancing homeowners with Fannie Mae and Freddie Mac loans.

The two legislators want to fast track the legislation to take advantage of today's low interest rates.

The average interest rate on 30-year fixed rate mortgages (FRMs) hit another record low, 3.84 percent, the week ending May 3, according to Freddie Mac. During the same week, the average rate on the 15-year FRM was also a record low 3.07 percent.

The essence of the legislation already has President Obama's support. This week, he gave Congress a "To Do" list that includes passing legislation that cuts the red tape in the mortgage market in order to expedite refinancing.

"I agree with President Obama’s 'To Do" list to create jobs and strengthen our middle class" said Menendez. "That's why I am introducing legislation this week to knock down barriers and help responsible homeowners refinance at lower rates. It will put thousands of dollars back in the pockets of hard working families and boost our economy. I look forward to moving this bill to our 'done' list quickly."

Targeting shortcomings of HARP 2.0 (the enhanced version of the Home Affordable Refinance Program), the legislation, if passed into law, would:

  • Extend streamlined refinancing for Fannie and Freddie borrowers.
  • Eliminate all up-front fees on refinances.
  • Eliminate appraisal costs for all borrowers.
  • Require second lien holders who unreasonably block a refinance to pay restitution to taxpayers.
  • Require mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay restitution to taxpayers.
  • Pay for itself. Reducing homeowners' mortgage payments also reduces default rates and foreclosures, reducing Fannie's and Freddie's reliance on taxpayer bailouts.

After improvements six months ago designed to include millions of more homeowners, HARP 2.0 hasn't been the resounding success supporters hoped it would be.

In it's "Senior Loan Officer Opinion Survey on Bank Lending Practices" the Federal Reserve Board recently reported only 30 percent of senior loan officers from 58 domestic banks and 23 U.S. branches of foreign banks reported that they were actively soliciting HARP applications.

The officers cited mortgage insurance and second mortgage issues as top reasons many balked at doing HARP refinances. Strict underwriting standards, fraud, prohibitive costs for borrowers and conflicts between servicers have also gummed up the works.

"Under HARP, lenders looking to compete with a borrower's existing servicer continue to face barriers to participating in the program, including stricter underwriting criteria and full representations and warranties," Boxer wrote in a letter to Federal Housing Finance Agency (FHFA) acting director Edward DeMarco encouraging him to improve HARP further.

"As a result, many homeowners are being forced to refinance through their existing servicer, instead of being able to shop around for the best deal," she added in a letter designed to garner quick support for additional upgrades to HARP.

HARP 2.0, available until Dec. 31, 2011, allows eligible homeowners with Fannie Mae or Freddie Mac mortgages to refinance to better terms and rates.

The borrower must have signed for the loan prior to June 1, 2009 and must be current on their mortgage payments with no late payments for the last six months, prior to applying. They also may have no more than one late payment in the last 12 months.

Homeowners can qualify no matter how far underwater they've become on their mortgage, that is, no matter how much more they owe on the mortgage balance than the home is worth.

The new legislation, if passed into law as it is, wouldn't meet some of the goals rumored to be coming in the so-called HARP 3.0, including:

  • Removing the Fannie Mae-, Freddie Mac-only barrier.
  • Opening the program up to Ginnie Mae, Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) mortgages.
  • Opening the program up to riskier subprime mortgages and "Alt-A" loans.
  • Allowing cash-out, jumbo loan refinances and refinances for loans held by self-employed people.
  • Including borrowers behind on their payments more than once in 12 months or borrowers with a single late payment in the last six months.

Mortgage News Daily's Robert Chrisman said his sources told him "(HARP 3.0) will allow conforming loans to be refinanced through FHA regardless of LTV or note holder."

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