Bipartisan Bill Would Remove Barriers Preventing Homeowners Who Are Making Their Payments From Refinancing at Historically Low Interest Rates
Washington, D.C. – Today, U.S. Senator Barbara Boxer (D-CA) held a press conference call to discuss her bill, the Helping Responsible Homeowners Act of 2011, which would remove barriers that have prevented millions of homeowners with non-delinquent, Fannie Mae or Freddie Mac-backed mortgages from refinancing at historically low interest rates. She also urged the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, to use its existing authority to eliminate these obstacles to refinancing.
Senator Boxer’s bill, S. 170, would allow an estimated two million homeowners to refinance at a significantly lower interest rate, which would save families thousands of dollars and boost the economy.
“The time to help struggling homeowners is now – while interest rates remain at near-historic lows,” Senator Boxer said. “This legislation would help millions of responsible homeowners who are making their payments, but are still struggling to make ends meet. By helping these homeowners refinance at lower rates, we will put thousands of dollars back in the pockets of families and strengthen our economy.”
Senator Boxer was joined on the call by Mark Zandi, chief economist at Moody’s Analytics, and Ronald Phipps, president of the National Association of Realtors, who spoke in strong support of the bill. 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.
Boxer also announced on the call that Senator Johnny Isakson (R-GA), who ran one of the nation’s largest independent residential real estate brokerage companies, has joined as a co-sponsor of the measure.
The bill aims to help borrowers who continue to make their mortgage payments on time, but whose homes have lost value during the real estate crisis. Currently, Fannie Mae and Freddie Mac offer refinancing programs to these homeowners. However, participation has been low, in part because homeowners must pay high, risk-based fees up front to refinance their loans – even though Fannie and Freddie already bear the risk if these homeowners were to default on their loans.
These additional fees can be as high as two percent of the loan amount, or an extra $4,000 on a $200,000 loan. These fees can discourage borrowers from refinancing at a lower rate, making it more likely that they will eventually default.
Senator Boxer’s legislation would:
- Eliminate risk-based fees on loans for which Fannie and Freddie already bear the risk;
- Remove refinancing limits on underwater properties;
- Make it easier for borrowers with second mortgages to participate in refinancing programs;
- Require that borrowers are able to receive a fair interest rate, comparable to that received by any other borrower in good standing who has not suffered a drop in home value and has stayed current with their mortgage payments.
Interest rates for 30-year home mortgages remain near historically low levels – under five percent. Yet of the 27.5 million mortgages guaranteed by Fannie Mae and Freddie Mac, over 8 million still carry an interest rate at or above 6 percent.
For the average homeowner – with a $150,000 loan – lowering the interest rate by 1 percent would save $1,100 a year. With up to two million additional borrowers refinancing, this would pump up to $2.2 billion annually into the economy.
The legislation is also expected to lead to up to 54,000 fewer defaults by homeowners and produce a net savings of up to $100 million for Fannie Mae and Freddie Mac.