HUD Secretary Shaun Donovan testifies before the Senate Banking, Housing… (Win McNamee / Getty Images )
WASHINGTON — Congress should quickly pass legislation to make it easier for more homeowners to refinance their mortgages, a move that could help households save money on their monthly payments and boost the housing market, Housing and Urban Development Secretary Shaun Donovan said Tuesday.
It's imperative to act soon so homeowners can take advantage of record-low mortgage rates, Donovan told the Senate Banking Committee.
"There’s a real urgency here because interest rates today are at the lowest level they have ever been for a 30–year mortgage," he said. "But as the economy continues to improve, the expectations are this window of record low interest rates may not last for a long time."
But in an election year, it's unlikely for Congress to pass major housing legislation given concerns by many Republicans about the government's outsized role in the mortgage market.
The Obama administration has been trying for three years to find effective ways to help struggling homeowners.
Last fall, officials revamped one of the administration's main programs, the Home Affordable Refinance Program, to help underwater homeowners modify their loans to get lower monthly payments.
But there are still barriers that are preventing millions of homeowners from refinancing through the program. Democrats, such as Sens. Robert Menendez of New Jersey, Barbara Boxer of California and Jeff Merkley of Oregon, are crafting legislation to remove those barriers and expand refinancing opportunities.
For example, Menendez and Boxer are proposing the Responsible Homeowner Refinancing Act. Among other things, it would try to reduce refinancing fees paid by homeowners by allowing lenders to more easily compete with the current mortgage servicer in offering a new loan.
"We need to inject competition and market forces into this market," Menendez told Donovan.
Donovan said one of the key barriers is high fees that the mortgage servicer can charge for a new loan because it is more difficult for other lenders to compete. Those other lenders must do much more underwriting of the loan — including fuller income verification — than the servicer under the HARP program.
The loans eligible for the program are owned or backed by Fannie Mae and Freddie Mac, as are the refinanced loans.
Because the seized housing finance giants already have the risk for the loans, it doesn't make sense to have higher standards for outside lenders, Donovan said. Reducing the interest rate makes the loan more likely to be repaid, which would help reduce losses on the $188 billion in taxpayer money already pumped in to Fannie and Freddie, he said.
A proposal by Merkley would allow many underwater homeowners with loans that are not backed by the government to refinancing into new loans insured by the Federal Housing Administration. Those homeowners would have to be current on their mortgage payments and meet other criteria.
"There is enormous potential upside if we can just move house prices a few percentage points through this broad-based refinancing," Donovan said.
But Republicans cautioned Democrats against moving too quickly on the legislation, warning not to bypass the Banking Committee to bring bills directly to the Senate floor for a vote. Sen. Bob Corker (R-Tenn.), said the Menendez-Boxer legislation could gain bipartisan support if some changes are made by the committee.
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