Mr. President, I rise today in support of the Expanding Refinancing Opportunities Act of 2012. This bill will allow homeowners who are struggling to stay in their homes to refinance their loans at…
Mr. President, I rise today in support of the Expanding Refinancing Opportunities Act of 2012.
This bill will allow homeowners who are struggling to stay in their homes to refinance their loans at today's historically low mortgage rates.
The administration's current refinancing programs are designed to help homeowners whose loans are guaranteed by Federal housing agencies. The problem is, those programs do nothing to help homeowners whose loans are owned by banks and mortgage trusts.
This bill would create a fund in the Federal Housing Administration that would allow underwater homeowners whose loans are not guaranteed by the GSEs or FHA to refinance into today's low mortgage rates. The FHA would be able to insure these loans, greatly reducing the interest rates charged by lenders.
Currently, these homeowners are completely locked out of refinancing and are not being served by the private markets.
A homeowner paying 7 percent interest on their mortgage could reduce their interest rate by 2.5 percent or more through this program.
The average American homeowner could save up to three thousand dollars a year in lower interest payments.
The Expanding Refinancing Opportunities Act of 2012 is modeled after a proposal President Obama outlined in his State of the Union address in February.
Eligibility requirements for this new program are very straightforward.
Homeowners must be current on their mortgage. They must meet a minimum credit score. Their loan must be under the FHA conforming loan limit. They must be living in a single-family, owner-occupied home that is their principal residence.
Additionally, the program requires that loans not be higher than 140 percent of a home's value. Housing data shows that homeowners with loan-to-value ratios under 140 percent are significantly less likely to default than those with higher ratios.
An added benefit of the 140 percent loan-to-value limit is that it could encourage lenders to write down the principal amount owed on the mortgage to allow homeowners to qualify for participation. This would be tremendously helpful for homeowners whose home values have fallen dramatically after the collapse of the housing bubble.
Some will criticize this proposal, suggesting the government must get out of the housing market for it to recover.
I believe the government can play a vital role in making sure that home values don't continue their steep declines. Robert Shiller, the noted housing bear and respected housing economist who publishes the closely watched Case-Shiller housing index, believes that home prices have reached normal levels.
To those who would oppose this bill, I ask: how much further would you have home values decline?
While many economic indicators are increasing, falling home prices and foreclosures continue to burden the economy. Here is a quick inventory of the state of America's homeowners:
Case-Shiller found home prices in February rising for the first time in 10 months, although that gain was a nominal 0.2 percent.
Nationally, more than 11 million homeowners, or 23 percent, are upside down on their mortgage, meaning they owe more than the value of their home. Almost 30 percent of homes in California are underwater.
Median home prices are at levels not seen since the late 1990s, with the gains in the intervening years completely wiped out. Home values on average have dropped by more than 30%, with $7 trillion in household wealth lost.
And Core Logic found that home prices increased 0.6 percent last month, but are still down 0.6 percent from a year ago.
Many housing economists believe the market is at its bottom, but that doesn't mean we are out of the woods. Further increases in foreclosures would undoubtedly put further downward pressure on home prices, which could further threaten underwater homeowners and feed into a vicious negative cycle.
This is also a matter of fairness.
When homeowners take on a mortgage, they have no control over whether their bank will slice-and-dice that loan, selling it to third-party investors. If that happens, chances of refinancing into lower interest rates plummet.
I have worked closely with the administration to make sure this added responsibility does not increase the financial risk to the FHA.
The Expanding Refinancing Opportunities Act would create a new insurance fund at the FHA, totally separate from the existing mortgage insurance fund that is currently under-capitalized.
The new fund would receive its own appropriation and would be audited separately from the existing mortgage insurance fund. Furthermore, I have worked to put safeguards in place to reduce FHA's risk. Most notably, homeowners must be current on their mortgages in order to participate.
Finally, the cost of the new program would be completely offset by a 0.1 percent increase in guarantee fees for loans backed by Fannie and Freddie in 2022.
The benefits of this proposal are clear: Refinancing into lower interest rates could save the average homeowner upwards of $3,000 a year.
Recent statistics show that the expanded refinancing program the administration announced in November is seeing tangible results. According to the Mortgage Bankers Association, refinance applications have jumped by as much as 70 percent in some of the hardest-hit States.
Clearly, efforts to expand refinancing opportunities are working. Similar benefits should be afforded to those homeowners whose loans-- through no fault of their own--are not insured by the Federal Government.
Beyond providing relief to American families, savings on mortgage payments would have a broader benefit for the economy.
Since the beginning of the financial crisis, the Federal Reserve has maintained an extremely low interest rate policy to encourage the availability of affordable credit.
There is no question that these measures have had an effect.
The stock market is climbing again after falling off a cliff in late 2008.
Mortgage rates have fallen to near-historic lows, recently dipping below 4 percent.
Consumers are spending less of their income paying down debt, from a high of 9.1 percent in 2007 to 5.8 percent today.
As a result, consumers are saving more and spending more on purchases that have been put off for years. This is a boost to the economy. For proof, look no further than the rebound in vehicle sales that has fueled the resurgence of American auto manufacturers.
However, there is also no doubt that the effects of the Fed's low interest rate policies have been dampened by problems in the housing market. The Fed has noted that home foreclosures are one of the biggest drags on the economic recovery.
Allowing all homeowners to lower their mortgage payments through refinancing is one way to help stop this downward spiral.
We cannot have a robust economic recovery while the housing market languishes. Just as a dilapidated foreclosure erodes the value of every home on the block, a sputtering housing market affects all aspects of the economy.
The sooner we reverse declines in the housing market, the sooner we can foster a robust economic recovery. We owe that to every American, and I encourage my colleagues to support The Expanding Refinancing Opportunities Act of 2012.
