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Senate Proposal to Revise HARP 2.0 Nets Industry Backing

The Responsible Homeowner Refinancing Act of 2012, introduced this month by Sens. ""Robert Menendez"":http://www.menendez.senate.gov/ (D-New Jersey) and ""Barbara Boxer"":http://boxer.senate.gov/ (D-California), received backing from witnesses at a ""Senate Banking Committee hearing"":http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=2ae1369e-e8bb-4c5b-80a3-ba090b901d47 Thursday.

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The bill aims to address what the senators say are barriers impeding the success of the recently revised ""Home Affordable Refinance Program,"":http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx commonly referred to as HARP 2.0.

Speaking before the committee, Menendez said, ├â┬ó├óÔÇÜ┬¼├àÔÇ£The goal of the bill is very simple. Any homeowner with a Fannie or Freddie loan should be able to get a pre-approved package in the mail from their lender, sign on the dotted line, and automatically be put into a refinanced loan that saves them hundreds of dollars a month. No more lending bureaucracy. No more red tape.├â┬ó├óÔÇÜ┬¼├é┬Ø

The bill aims to eliminate all upfront fees and appraisal costs for refinances, prohibit second-lien holders from unreasonably hindering refinances, and penalize mortgage insurers who refuse to transfer coverage to refinanced loans without due cause.

The bill also addresses specific competition barriers inherent in HARP 2.0.

The original HARP, introduced by the administration in 2009, aimed to refinance loans for 4 million to 5 million homeowners. To date, about 1.2 million homeowners have refinanced their loans through HARP, according to ""testimony"":http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Testimony&Hearing_ID=2ae1369e-e8bb-4c5b-80a3-ba090b901d47&Witness_ID=01562670-fff1-4038-8bbd-da398dfef0c0 from Mark Zandi, chief economist and co-founder of ""Moody's Analytics."":http://www.moodys.com/

A little more than 100,000 of those refinances have gone to underwater homeowners.

So far, HARP has been ""a disappointment,"" according to Zandi. However, Zandi did note that the changes set forth in HARP 2.0 are an improvement, and he projects the revised program will help 2.5 million to 3 million homeowners.

""Policy steps to facilitate more refinancing are among the most straightforward ways to help

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the housing market and the economy,"" Zandi stated during Thursday's hearing.

Given the progress of HARP 2.0, Zandi says HARP should be extended to all Fannie and Freddie loans, adding that, ""We should do it quickly because mortgage rates are very low, and this is such a good time to refinance.""

The ""National Association of Realtors"":http://www.realtor.org/ (NAR) predicts the new bill would aid in refinancing 3 million loans, saving borrowers a total of $4.5 billion to $4.8 billion per year, which translates to about $2,800 per year for each individual homeowner, according to ""testimony"":http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Testimony&Hearing_ID=2ae1369e-e8bb-4c5b-80a3-ba090b901d47&Witness_ID=22995df3-4ba5-4ed2-8a20-489b24f2abe9 from NAR President Moe Veissi.

Veissi supports the Responsible Homeowner Refinancing Act of 2012 and stated that policymakers should do what they can to promote homeownership, which he said ""is inextricably linked to a healthy community and a healthy American economy.""

Bill Emerson, CEO of ""Quicken Loans"":http://www.quickenloans.com/mortgage-options/online-mortgage-application?gclid=CJaQ5ZrambACFUvDtgods2WpZA&qls=GBR_K0009869.0000542706&ef_id=V@NPfMxwYBwAAMKw:20120524195548:s also spoke in support of the bill, stressing the importance of leveling the playing field for originators in refinance actions.

Under HARP 2.0, a loan├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós current servicer can refinance the loan without income or asset verification, while a new originator must go through the full underwriting process, exposing them to more risk.

""Because the new originators have more difficult underwriting requirements than same servicers, the new originators bear a much higher degree of repurchase risk via their representations and warranties,"" Emerson stated in his ""written testimony"":http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Testimony&Hearing_ID=2ae1369e-e8bb-4c5b-80a3-ba090b901d47&Witness_ID=fafb17e9-45fb-4d32-8888-d16af98b2e5a

The result, he says, is a reluctance among originators to participate in HARP 2.0.

Emerson also suggested that large servicers do not have the capacity to refinance the millions of eligible loans they currently service.

The new bill will level the playing field for originators, expanding HARP's impact, according to Emerson.

While the bill's sponsors and Thursday's panelists insist the refinances will come at no cost to taxpayers, ""there is a loser in this, and that├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós the investor,"" Zandi stated.

However, Zandi says mortgage-backed securities (MBS) investors are aware of and account for prepayment risk. Furthermore, so far, MBS investors have been perhaps the greatest beneficiaries of government policy throughout the financial crisis, according to Zandi.

The bill proposed by Menendez and Boxer is one of ""three recent proposals"":https://themreport.com/articles/obama-administration-pushes-for-new-refinance-expansions-2012-05-11 to increase refinancing options for Americans.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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