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White House Pushes Refinancing Expansion Before Election

September 11, 2012 by · Leave a Comment 

Bloomberg News

http://www.businessweek.com/news/2012-09-10/white-house-pushes-refinancing-expansion-before-election#p2

White House Pushes Refinancing Expansion Before Election

By Clea Benson and Cheyenne Hopkins on September 10, 2012

The White House is urging the U.S. Senate to vote as soon as this week on an expansion of a government mortgage-refinancing program, a move that could showcase President Barack Obama’s support for policies aiding homeowners before the Nov. 6 presidential election.

Democratic leaders are considering adding the measure expanding the Home Affordable Refinancing Program to their agenda for the two-week Senate session that begins today, according to Senator Barbara Boxer of California and Senator Robert Menendez of New Jersey, who wrote the bill.

“We are talking about a situation where we have historically low rates, we don’t know what the future holds, and we can’t afford to waste a lot of time,” Boxer said today during a conference call with reporters.

Boxer and Menendez today introduced a revised version of the measure with changes designed to draw the support of Republicans and the industry.

Win or lose, a vote on the bill could help the president. If enough Republicans sign on, the vote could show momentum for his efforts to help the 11.3 million borrowers who owe more than their homes are worth. If Republicans vote against the measure, Democrats can paint them as unsympathetic to homeowners, said Jaret Seiberg, senior policy analyst at Guggenheim Securities’ Washington Research Group.

Getting Votes

“This is an effort by the president and his administration to say we’re trying to help people refinance and blame blocking action on Republicans,” Seiberg said in an interview.

The pressure for an immediate vote is coming from the Obama administration, according to Senator Robert Corker of Tennessee, a Republican on the Banking Committee. The White House press office did not respond to e-mails requesting comment.

“My guess is they may get the votes. If they get the votes, they want to do it in a way that tries to show a divide,” Corker said.

Menendez said he and Boxer had been discussing the bill with the White House.

“We know this is on the president’s to-do list, and we think the White House is strongly supportive,” he said.

The Senate session may last as few as six days. Even if senators manage to pass it in that time frame, the bill has little chance of becoming law since Republicans who control the House have not introduced a companion measure.

Refinancing Push

For the past year, Obama has been pushing widespread refinancing for homeowners who can’t take advantage of historically low interest rates because they are underwater on their mortgages. The effort got a boost last October from changes to the Home Affordable Refinance Program, known as HARP, allowing homeowners with loans backed by Fannie Mae and Freddie Mac to refinance no matter how much their loans exceed the value of their homes.

About 519,000 homeowners used the HARP program to refinance during the first seven months of the year, the Federal Housing Finance Agency reported on Friday. Of those, more than 200,000 had mortgages exceeding their property value by at least 5 percent.

The bill written by Menendez and Boxer would expand the HARP program by promising lenders they won’t be forced to absorb the loss on refinanced loans that default, even if the loans weren’t originated to the standards that Fannie Mae and Freddie Mac require.

Liability Waiver

Currently, liability for bad loans that were improperly originated is only waived under HARP when lenders refinance loans that they already service. Consequently, some lenders have been refusing to refinance loans for borrowers with mortgages serviced by other banks. The bill would erase the distinction.

Menendez and Boxer today announced changes designed to prevent borrowers from refinancing multiple times under the program to give investors more certainty about the performance of mortgage bonds. They also eliminated a proposed penalty for mortgage insurers who refuse to cover the refinanced loans and penalties for banks that refuse to subordinate second liens to the refinanced loans.

The Mortgage Bankers Association today said it supports the bill with the revised language.

Refinancing Support

“We’ve been consistent all along in support of efforts to refinance as many Americans as possible,” David Stevens, president and chief executive officer of the Mortgage Bankers Association, said in a phone interview. “We’ve been working very closely with both Senator Menendez’s staff and Boxer’s staff and the senators themselves to help them work though the concerns of the broad set of stakeholders in the industry.”

Some Republicans, including Corker, say they support the basic concepts in the bill. Some Republican votes could be lost, Corker said in a telephone interview, because of the Democrats’ plan to bring the measure directly to the Senate floor without allowing amendments or a vote by the Senate Banking Committee.

“I will not support this bill unless it comes through the committee process,” Corker said. “The administration is fearful of the changes Democrats will make so they don’t want it to go through a committee.”

The Mortgage Bankers Association also would prefer that the bill be handled through the normal committee process, Stevens said.

Boxer and Menendez said the bill may go directly to the floor if members of the Banking Committee cannot agree to refrain from adding amendments that do not concern refinancing.

Administration Push

For months, Obama and aides including Shaun Donovan, secretary of the Department of Housing and Urban Development, have been urging audiences around the country to push for the Menendez-Boxer bill as well as two others.

One is a measure written by Oregon Democrat Jeff Merkley that would require Fannie Mae and Freddie Mac to pay closing costs when borrowers refinance into a loan with a term of 20 years or less, allowing homeowners to rebuild equity more quickly.

The second is a bill written by California Democrat Dianne Feinstein that would allow borrowers without government-backed loans to refinance into mortgages insured by the Federal Housing Administration.

Of the three, the Boxer-Menendez bill is the only one that has drawn any Republican expressions of support.

The Boxer-Menendez bill is S. 3522. The Merkley bill is S. 2909. The Feinstein bill is S. 3047.

To contact the reporter on this story: Clea Benson in Washington at Cbenson20@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

 

New Rules Expand Short Sale Options

September 3, 2012 by · 1 Comment 

By Kenneth R. Harney, Washington Post  Sunday, September 2, 2012

WASHINGTON — Starting Nov. 1, owners whose loans have been purchased or guaranteed by Fannie Mae or Freddie Mac may qualify for a short sale if they fit key hardship criteria.

The criteria include: unemployment; divorce; long-term disability; a change of employment that is more than 50 miles from the current home; a business failure; death of the primary or secondary wage earner; or a natural or man-made disaster.

Short sales let borrowers and lenders avoid the crushing costs of foreclosure by bringing in a new purchaser for the house at a price well below the amount owed to the lender. In a successful sale, the distressed owner receives a write-down of the portion of the principal not covered by the new buyer’s price.

In what could be a far-reaching change, Fannie and Freddie will allow borrowers who are current on their mortgage payments — not seriously delinquent as traditionally required — to qualify for short sales, provided they fit the “hardship” criteria. Borrowers who are considered “most in need,” that is, they are far behind on payments, have depressed credit scores and are facing financial stress, will be eligible for streamlined processing of short sales, involving reduced documentation and much speedier resolutions than usual.

Under rules that took effect in June, loan servicers already are required to operate on fast timelines for short sale requests. They are supposed to respond to borrower requests for short sales within 30 days of receipt of an offer by a purchaser and must give applicants a final decision within 60 days of receipt of a completed short sale package.

In the past, short sales often have been drawn out and contentious, sometimes taking nine months or more to close. They have also had a high rate of failure and cancellations, when buyers get frustrated and bail out of the transaction after waiting for banks and loan servicers to make decisions and process paperwork.

Banks that hold second mortgages or credit lines secured by the house have been another choke point. As lien holders, they can block the entire transaction if they feel they are not being properly compensated along with the first mortgage holder, and have frequently blown up deals with their demands. Under the new Fannie and Freddie rules, second lien holders will be entitled to a maximum of $6,000 out of the sale proceeds.

The broadening of short sales to those who are current on their mortgage payments but enduring serious hardships could help huge numbers of homeowners.

Though the Federal Housing Finance Agency has no estimates of how many borrowers might be assisted by the change, acting director Edward J. DeMarco has said 4.63 million loans in Fannie’s and Freddie’s combined portfolios are underwater, and that approximately four-fifths of these are current on payments.

Among other key changes in Fannie and Freddie short sales:

• Members of the armed forces who receive permanent change-of-status orders and are underwater will be automatically eligible for short sales, even if they are current on their loan payments.

• In states where Fannie and Freddie have the legal right to pursue “deficiencies” when short sale proceeds do not pay off the existing debt, they will waive that right and instead ask borrowers who have sufficient assets or income to make “cash contributions” or execute promissory notes to cover part of the shortfall.