Industry Calls for Expanded Refinance Program

At a hearing before the Senate Committee on Banking, Housing, and Urban Affairs, witnesses urged Congress to help more underwater homeowners refinance their loans at current, record-low interest rates.

The Home Affordable Refinance Program (HARP) – part of the Marking Home Affordable program – allows underwater homeowners with mortgages backed by Fannie Mae and Freddie Mac to refinance their mortgages at lower interest rates.

However, the program has helped fewer than 900,000 of the more than 10 million underwater homeowners in the country.

“Reinvigorating HARP would provide a substantial boost with no meaningful cost to taxpayers,” said Mark Zandi, chief economist at Moody’s Analytics before the Senate committee Wednesday.

“Refinancing has been disappointing given record-low borrowing costs,” Zandi said.

“In 2003, when fixed mortgage rates were between 5.5% and 6%, home loans were being refinanced at an annualized rate above $4 trillion. The current level of activity is less than half that,” he stated.

Zandi believes in order to expand HARP’s reach, Fannie and Freddie need to discontinue charging add-on rates and allow homeowners with lower credit scores to refinance.

Sen. Barbara Boxer (D-California) shares Zandi’s view and has proposed the Helping Responsible Homeowners Act of 2011 (S. 170) to allow more homeowners to refinance.

“One reason existing refinancing efforts have fallen far short of their goals is that Fannie and Freddie continue to charge homeowners high, risk-based fees up front to refinance their loans,” Boxer explained to the committee.

Boxer’s act would “eliminate the risk-based fees on loans for which Fannie and Freddie already bear the risk” and allow about 5 million homeowners to refinance, according to Boxer.

“It’s the best way to get money into our economy quickly,” Boxer said.

“It is not a boost to the housing market from the standpoint of creating sales, but it is a depressant on more foreclosures,” Sen. Johnny Isakson (R-Georgia) said of the bill, which he is co-sponsoring.

Isakson believes the bill will reduce the likelihood of strategic default for the millions of underwater homeowners.

David Stevens, president and CEO of the Mortgage Bankers Association (MBA) addressed the committee stating that the MBA also supports a HARP adjustment.

He believes streamlining appraisal and closing processes will reduce the cost of refinancing and suggested raising HARP’s required loan-to-value ratio, which is currently 125 percent.

Richard A. Smith, CEO of Realogy Corporation, agreed that widespread refinancing will help the market in the short-term, but he cautioned that “an improved economy and value appreciation are essential to any long-term solution.”

“Underwater equity today that remains underwater equity five years from now does little to improve the long-term state of housing,” Smith stated.