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HARP 3.0 rumors now U.S. Senate Bill 3085

by Broderick Perkins

(5/15/2012) - Rumors of a HARP 3.0 in the pipeline have jelled in the form of legislation called the "Responsible Homeowner Refinancing Act of 2012," to make it easier and less expensive to refinance under the Making Home Affordable initiative known as the Home Affordable Refinancing Program (HARP).

If passed into law, the legislation could bring relief to millions of more homeowners than the current version, known as HARP 2.0, which was an improvement over the original HARP launched back in 2009.

Legislation authors U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) say there are 17.5 million homeowners holding Fannie Mae and Freddie Mac (government supported enterprises, or GSEs) loans (the only loans eligible under the program) who could benefit because those homeowners have mortgages with interest rates above 5 percent.

Interest rates for 30-year, and 15-year fixed-rate mortgages came in at record lows, averaging 3.83 percent and 3.05 percent, respectively, the week ending May 10, according to Freddie Mac.

Also on May 10, Menendez and Boxer filed Senate legislation for HARP 3.0, U.S. Senate Bill 3085. The legislation's next stop is the Senate Committee on Banking, Housing, and Urban Affairs, provided the committee's chair approves the measure for a hearing.

Putting an end to rumors, but not quite living up to all of them, here's an inside look at the "Responsible Homeowner Refinancing Act of 2012."

If passed into law the act would:

Extend streamlined refinancing to additional GSE borrowers

GSEs' overseer, the Federal Housing Finance Agency, recently improved HARP to make more homeowners eligible, but newly-reduced costs apply only to HARP-eligible borrowers with less than 20 percent equity. Freddie Mac imposed stiffer requirements.

This bill would ensure that all GSE borrowers, who are making their payments on time, have the same access to simple, low-cost refinances, regardless of loan to value. A single set of rules also would simplify the process and make it easier and more automatic for servicers to market and promote HARP. The bill would also make HARP available to those with loans made prior to June 1, 2010. Right now HARP is only for those with loans made prior to June 1, 2009.

Completely eliminate up-front fees

In HARP 2.0, GSEs lowered fees on refinancing HARP loans with less than 20 percent equity, but the bill will prohibit GSEs from charging upfront fees on any HARP refinance for a loan they already guarantee. Fees can amount to $4,000 on a $200,000 loan.

Eliminate appraisal costs for all borrowers

GSEs save money by using Automated Valuation Models to determine home value, but some borrowers are still saddled with appraisal costs of $350 or more. Removing appraisal costs would remove another financial barrier to HARP refinances.

Streamline refinancing application process

HARP borrowers must be current on their mortgage payments and have no late payments for the last six months and no more than one late payment in the last 12 months, in both cases, prior to applying for the program. Those who qualify have already proven they are low risk. The act would reward them by eliminating employment and income verification requirements to further streamline the refinancing process. A streamlined process would encourage lenders to send eligible borrowers a pre-approved application packet they would only need to sign and return.

Remove additional barriers to competition

Lenders looking to compete with the current loan servicer face anti-competitive barriers that create higher prices and harsher terms for the borrower. To unlock competition, the act would direct GSEs to require the same streamlined underwriting and associated representations and warranties for new servicers as they do for current servicers.

Require second lien holders, who unreasonably block a refinance, to pay restitution to borrowers

Second-lien holders often prevent borrowers from refinancing by refusing to re-subordinate their lien. The bill would force these refinance-blocking second lien holders to pay restitution to borrowers, provided the refinanced loan would not increase the risk faced by the second lien holder.

Require mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay restitution to borrowers

Similarly, mortgage insurers who refuse to transfer insurance coverage to refinanced loans, would be forced to likewise pay restitution for future such actions.

According to the legislation's summary, all mortgage insurers except United Guaranty, a subsidiary of TARP-recipient AIG, have agreed to voluntarily and automatically carryover existing coverage to the refinanced loan. United Guaranty insures approximately 15 percent of all GSE loans with mortgage insurance, according to the legislation.

The legislation says the law would pay for itself through reduced default rates on GSE loans.

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