The senators cited a recent study by Amherst Securities Group that found HARP borrowers are paying more than half a percentage point more than borrowers with other types of loans.
The new bill directs the housing-finance agencies to require the same underwriting standards for new servicers as they do for existing ones, leveling the playing field.
HARP also makes distinctions between borrowers with more equity in their homes and those who are underwater. GSE borrowers who have more than 20% equity in their homes are not eligible for HARP refinancing. The bill seeks to ensure that all GSE borrowers, regardless of the equity in their homes, have the same access to low-cost refinancing options.
The GSEs also lowered upfront refinance fees for those with less than 20% equity in their homes. That creates an "economically indefensible situation in which borrowers with significant equity in their homes could face steeper costs in refinancing than borrowers with no equity whatsoever. So borrowers who pose less risk to the GSEs are in fact paying a higher risk premium," the senators said. The bill will prohibit GSEs from charging upfront fees for loans they have already guaranteed.The bill will also eliminate appraisal costs and waive employment and income verification requirements to further ease the process. It also intends to expand HARP, which expires at the end of 2013, by another year. The senators said the bill has broad support, including that of the Mortgage Bankers Association. It remains to be seen, however, if the bill will win Congressional approval this time. According to KBW analyst Brian Gardner, the chances of the bill passing in the Republican-controlled House are "quite low." Gardner says the improvements in the housing market "reduces political pressure on Congress to act." Next week, President Obama is expected to renew his push for a broader refinancing program in his State of the Union address. Last year, Obama proposed allowing borrowers with private mortgages who were underwater but current on their payments to refinance at lower rates through the FHA. But the plan never saw the light of day, with Republicans strongly opposed to the idea of funding the program through a "bank tax." Now with the FHA in deep financial trouble, analysts believe the chances of winning approval is even slimmer. The Wall Street Journal recently reported that the Treasury might push a plan to allow Fannie Mae and Freddie Mac to purchase loans from private investors who face an imminent risk of default and allow them to refinance. The agencies would be allowed to charge a higher rate to compensate for the risk of the loan, but some fear that it would increase the risks to taxpayers. Another proposal would allow borrowers to qualify for a reduced rate under the Home Affordable Modification Program, which wouldn't require legislation and therefore has a higher chance of being implemented. "If the administration can act without congressional approval, such as the HARP expansion in October, we could see some changes on the mortgage front. But any large program expansions which require congressional approval are, in our view, not likely to go far," KBW's Gardner said in a note. -- Written by Shanthi Bharatwaj in New York.
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