The Obama administration will work to refinance mortgages for so-called underwater borrowers whose loans are in private-label securities, U.S. Treasury Department official Michael Stegman said today in a Las Vegas speech.
Treasury may act unilaterally to aid borrowers who owe more than their homes are worth if Congress doesn’t pass legislation providing assistance, Stegman, a counselor on housing policy for the agency, said at an American Securitization Forum conference.
“Legislation would facilitate a refinance, whereas under our existing authority, Treasury could only modify the most deeply underwater loans and pay investors for some amount of forgone interest,” Stegman said.
Underwater borrowers whose loans are owned by private investors have been unable to take advantage of existing federal aid such as the Home Affordable Refinance Program for mortgages backed by government-owned Fannie Mae and Freddie Mac.
Senators Robert Menendez of New Jersey and Barbara Boxer of California, both Democrats, plan to introduce as soon as this week a bill that would expand HARP 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 bill, a new version of legislation that failed to advance last year, is the first in a series of measures planned by President Barack Obama’s administration and congressional Democrats to promote refinancing as a way to revive the housing market.
Treasury wants to spur new lending by working to mitigate the risk that banks will be forced to buy back defaulted loans in private-label securities, Stegman said. A system designed to lessen that risk for U.S.-backed loans took effect this month.
Stegman, who has spent more than a year working on a proposal to overhaul the U.S. housing finance system, said he’s heard few suggestions that address all of Treasury’s priorities. Those goals include ensuring that private capital bears most of the risk in the housing market, that families can obtain long-term fixed-rate mortgages and that home-buyers with modest incomes are able to borrow.
“I have been on the receiving end of some pretty harsh commentary on both the substance and the pace of our housing activities,” Stegman said. “Of the many organizations with whom I have met or whose housing finance reform proposals I have pored over, few address all of the above priorities.”