May 2011
Transaction and Regulatory Committee
Federal Committee
This material is for discussion purposes only and has not been approved by the Transaction and Regulatory Committee, Federal Committee, Executive Committee or the Board of Directors.
Issue:
Should C.A.R., in conjunction with NAR, “SUPPORT” legislation that temporarily allows all Fannie Mae and Freddie Mac borrowers to refinance their current mortgages at today’s lower interest rates regardless of their current loan-to-value (LTV) or other factors?
Action:
Optional
Options:
1. Take a “SUPPORT” position on legislation that would allow Fannie Mae and Freddie Mac borrowers to refinance their current mortgages at today’s lower interest rates.
2. Take an “OPPOSE” position on legislation that would allow Fannie Mae and Freddie Mac borrowers to refinance their current mortgages at today’s lower interest rates.
3. Take a “WATCH” position on legislation that would allow Fannie Mae and Freddie Mac borrowers to refinance their current mortgages at today’s lower interest rates..
4. Take no action
Status/Summary
Legislation has been proposed in both the Senate and the House of Representatives that would permit homeowners with either a Fannie Mae or Freddie Mac home loan to refinance their loans at today’s interest rates. While the bills are similar there are some distinct differences (differences are in bold).
S. 170-Helping Responsible Homeowners Act, Introduced by Senator Barbara Boxer (D-CA)
• Directs Fannie Mae and Freddie Mac to carry out a one-year program providing for the refinancing of qualified single-family housing mortgages they own or guarantee.
• Defines a qualified mortgage as one that: (1) is an existing first mortgage (purchase or refinanced) on a single-family home, including condominium or co-op, that is occupied as the mortgagor’s principal residence; (2) is owned or guaranteed by the particular GSE; and (3) the mortgagor is current on payments due under the mortgage.
• The interest rate offered on the new loan cannot exceed 40 basis points above the conventional prime rate as published by Freddie Mac.
• There is no LTV requirement.
• All prepayment penalties are waived.
• Servicers will be required to notify homeowners with Fannie and Freddie loans of the new program.
H.R. 363-Housing Opportunity and Mortgage Equity Act, Introduced by Dennis Cardoza (D-CA)
• Directs Fannie Mae and Freddie Mac to carry out a one-year program providing for the refinancing of qualified single family housing mortgages they own or guarantee.
• Defines a qualified mortgage as one regardless of whether the mortgagor is current on payments due or in default, that: (1) is an existing first mortgage (purchase or refinanced), a single family home, including a condominium or co-op, that is occupied as the mortgagor’s principal residence; (2) is owned or guaranteed by the Fannie or Freddie; and (3) was originated on or before the enactment of the law.
• All prepayment penalties are waived.
• Requires Fannie or Freddie to pay a fee up to $1,000 to the servicer of a mortgage.
• There is no LTV requirement.
• The interest rate shall be equivalent to comparable conventional loans.
Background:
There are nearly 11 million mortgages owned or guaranteed by Fannie Mae and Freddie Mac that still carry an interest rate at or above six-percent. If half of these borrowers were able to refinance and reduce their rate by at least one-percent on an average loan balance of $150,000, a one-percent interest rate reduction would result in a borrower saving $1,129 annually, and over $6 billion in total annual savings. While the Congressional Budget Office has not given the legislation an official score of the bills, an informal analysis determined the bills may produce a net savings to Fannie and Freddie because the reduced defaults and foreclosures would outweigh any lost revenue.
Outlook:
While Congress will look very seriously at legislation that will directly impact the government sponsored enterprises (GSE) of Fannie Mae and Freddie Mac, it may be difficult for legislation such as this to pass. In the House, the proposed bill is a Democrat supported bill with no GOP cosponsors. It is unclear if the House GOP, who will control the discussion of reforming the GSEs, will be open to democratic proposals and amendments.
The Senate has stated their intention to move more slowly on the issue of GSE reform, and therefore it is unknown if this proposal would be considered as part of a larger reform package.
Support:
Supporters of the legislation say:
• One out of four Californians are upside down on their mortgage, in some places in California that number is more than three in five. These homeowners are trapped in these loans because they can’t refinance without putting down additional money to make the loan-to-value appropriate for a refinance.
• The extreme housing market we are experiencing, which is temporary and will eventually pass, requires short term temporary fixes to help struggling homeowners make it through.
• Reducing homeowner’s mortgages now, as so many are struggling to make their payments, is a no cost approach to reducing the number of future foreclosures.
Opposition:
Opponents of the legislation say:
• Now is not an appropriate time to advocate for legislation that attempts to expand Fannie and Freddie while many in Congress want to shrink or eliminate them.
• Allowing delinquent homeowners to refinance isn’t helping them keep their home, but is instead merely delaying the inevitable foreclosure and thus prolonging the current down market.
• Such a broad and sweeping program may have a severely negative impact on not just the two mortgage giants that are now backed by the U.S. taxpayers, but to the economy as a whole.
C.A.R. Policy:
C.A.R. has no position on this issue.
NAR Policy:
NAR has taken no position on this issue but continues to review it.
Should C.A.R., in conjunction with NAR, “SUPPORT” legislation that temporarily allows all Fannie Mae and Freddie Mac borrowers to refinance their current mortgages at today’s lower interest rates regardless of their current loan-to-value (LTV) or other factors?
