Underwater homeowners may get additional federal assistance for refinancing government-backed loans under a proposal being revived in the U.S. Senate.
Democratic Senators Robert Menendez of New Jersey and Barbara Boxer of California plan to introduce as soon as this week a bill that would expand the existing Home Affordable Refinancing Program by promising lenders they won’t be forced to absorb the loss on refinanced loans that default, according to a person with knowledge of the matter. The person asked not to be identified because the timing is not final.
The bill is the first of a series of measures planned by the White House and congressional Democrats to promote refinancing as a way to spur a recovery of the housing market.
The Menendez-Boxer bill, a new version of a measure that failed to advance in the last session of Congress, would include a one-year extension of HARP, which is aimed at helping borrowers who are current on their mortgages but unable to refinance because their home values have dropped. The program, which applies to loans backed by U.S.-owned mortgage finance companies Fannie Mae and Freddie Mac, is set to expire at the end of this year; the bill would extend it through 2014.
“We believe the legislation -- if it could be adopted -- would be positive for the mortgage originators by giving them more time to find borrowers eligible for HARP,” Jaret Seiberg, senior policy analyst at Washington Research Group, a unit of Guggenheim Securities LLC, wrote in a market commentary today.
Banks including JP Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Bank of America Corp. could benefit, Seiberg said.
U.S. residential real estate lost about a third of its value after home prices peaked in 2006. Prices are now rising again, shrinking the number of underwater properties, worth less than the mortgages on them. There are now about 7 million underwater properties, down from 11 million in 2011, according to JPMorgan.
The Obama administration has been pushing widespread refinancing for homeowners who have been unable to take advantage of historically low interest rates because they are underwater on their mortgages.
The effort got a boost last October from changes to HARP that allowed homeowners with loans backed by Fannie Mae and Freddie Mac to refinance no matter how much their loans exceed the value of their homes.
In a letter supporting the new bill, the National Organization of Realtors said it “offers relief to homeowners who continue to meet their mortgage obligation during this on-going period of economic unrest.”
Menendez and Boxer were unable to pass the bill during the last session of Congress because they were unable to garner Republican support without opening up the measure for amendments.
Passage also is not assured this session, Seiberg wrote.
“We detect little support among House Republican leaders,” he said. “So even if it can pass the Senate, it may well die in the House.”
About 1.8 million homeowners have used the HARP program to refinance since the program began in 2009.