Both of California’s U.S. Senators are among more than a dozen from both sides of the aisle who urged the Obama Administration today to make administrative reforms to help millions of responsible homeowners refinance and take advantage of today’s record-low interest rates.
The lawmakers – writing to Housing and Urban Development Secretary Shaun Donovan, Treasury Secretary Timothy Geithner, National Economic Council Director Gene Sperling and Federal Housing Finance Agency Acting Director Edward DeMarco – said that with interest rates at 3.94 percent, it’s time to lower barriers that keep borrowers trapped in higher-interest loans and to address other hurdles that limit existing refinancing programs.
Specifically, they called for removing loan-to-value limits, which they said would provide the most at-risk borrowers an alternative to simply walking away from their mortgage; eliminating loan level price adjustments, which they say make a refinance less affordable, reduce the benefit to the borrower, and can’t be justified on loans on which Fannie Mae and Freddie Mac already bear the risk; and ensuring that second lien holders don’t stand in the way of a refinance.
“Time is of the essence and we urge you to act quickly and aggressively to ensure that responsible homeowners receive the full benefit of these lower rates,” they wrote.
In addition to U.S. Senators Barbara Boxer, D-Calif., and Dianne Feinstein, D-Calif., the letter was signed by Johnny Isakson, R-Ga.; Robert Menendez, D-N.J.; Mark Begich, D-Alaska; Jeff Merkley, D-Ore.; Sheldon Whitehouse, D-R.I; Debbie Stabenow, D-Mich.; Scott Brown, R-Mass.; Robert Casey Jr., D-Pa.; Richard Burr, R-N.C.; Frank Lautenberg, D-N.J.; John Kerry, D-Mass.; Mark Warner, D-Va.; Saxby Chambliss, R-Ga.; and Ron Wyden, D-Ore.
Read the full text of the letter, after the jump…
October 11, 2011
Dear Secretaries Geithner and Donovan, Director Sperling, and Acting Director DeMarco:
In President Obama’s speech to the Congress last month, he committed his Administration to working with federal housing agencies to help more homeowners refinance their mortgages at historically low interest rates. As he noted, this step could “put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”
We are encouraged by the efforts that have taken place since then to lower the barriers that have kept responsible borrowers trapped in higher interest loans and urge a speedy and comprehensive conclusion to this process. Bipartisan legislation currently before the Senate would address many of these barriers by:
Removing loan-to-value limits, which would provide the most at-risk borrowers an alternative to simply walking away from their mortgage.
Eliminating loan level price adjustments. These up-front, risk-based fees make a refinance less affordable, reduce the benefit to the borrower, and cannot be justified on loans on which Fannie and Freddie already bear the risk.
Ensuring that second lien holders do not stand in the way of a refinance.
All of these changes can be accomplished administratively and we urge that you take immediate steps to do so. We also support efforts to address other hurdles that have limited the success of current refinance programs, including representations and warranties, mortgage insurance, and high lender origination fees.
It is equally important that in reducing these barriers, the benefits of today’s low rates are not lost to borrowers. With interest rates having hit an all-time low of 3.94 percent, there are nearly 19 million loans guaranteed by Fannie Mae and Freddie Mac paying interest above 5.0 percent that could benefit from a refinance. Any changes to existing programs must enable as many of these borrowers as possible to refinance and to do so at rates comparable to those received by any other current borrower who has not suffered a drop in home value.
As was heard in recent testimony before the Senate Housing, Transportation, and Community Development Subcommittee, there is broad consensus among economists and housing experts that this is something we need to do. Interest rates, however, will not remain low forever. Time is of the essence and we urge you to act quickly and aggressively to ensure that responsible homeowners receive the full benefit of these lower rates.