SBC Discusses Ways to Expand Access to Refinancing Initiatives
AT TODAY’S SENATE BANKING COMMITTEE HEARING, members discussed ways to improve government refinancing initiatives in an effort to strengthen the struggling housing market.
The hearing comes as several Democrats on the committee are pushing to pass legislation that would expand the Home Affordable Refinance Program (HARP) to cover loans originated after May 31, 2009, including the Responsible Homeowner Refinancing Act of 2012, cosponsored by Sens. Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.). Additionally, President Obama is expected to unveil a list of items for Congress to complete in a speech this afternoon; item number two on that list is to “cut the red tape” so that responsible homeowners can refinance.
In his opening remarks, Chairman Tim Johnson (D-S.D.) said the continued lag in the housing market’s recovery is creating impediments to large-scale, long-term housing finance reform. He highlighted the efforts of the Federal Housing Finance Agency (FHFA) and the Obama administration to remove barriers to refinancing, but acknowledged that more needs to be done and urged the committee to carefully consider the Menendez-Boxer proposal to expand refinancing opportunities for borrowers with loans held by the government sponsored enterprises (GSEs).
Ranking Member Richard Shelby (R-Ala.) criticized the Obama administration’s efforts to reform the GSEs and expressed his disappointment with the lack of credible housing finance reform proposals. In closing, he noted the importance of the housing market to the recovery of the overall economy and pledged Republican committee member support to craft bipartisan housing reform legislation.
In his opening statement, Shaun Donovan, Secretary of the Department of Housing and Urban Development (HUD), provided an overview of encouraging housing finance data and declared that the housing market has “turned a corner.” Despite the positive news, Donovan said more needs to be done to help the housing market recover and highlighted a range of barriers preventing homeowners from taking advantage of record low interest rates. In response to those barriers, he said HUD and the Federal Housing Administration (FHA) are currently examining two proposals to bolster HARP and are preparing to implement two equity building initiatives to offset the market impact of vacant homes and foreclosures. In closing, Donovan touted the effectiveness of the Neighborhood Stabilization Program (NSP) at combating home equity loss in the communities most affected by the foreclosure crisis, noting that 75 percent of neighborhoods that received NSP investment funds have seen increased home prices.
Question and Answer
Johnson and Menendez asked if the changes the FHFA made to the HARP program last fall were effective and what barriers to refinancing remain. Donovan said the changes to HARP were “critical,” noting that 750,000 refinancing applications have been filed with the four largest servicers since the changes were made. However, Donovan said there are still three key barriers to refinancing, including: 1) Homeowners that have first liens with an 80 or below loan-to-value (LTV) ratio but have second liens or other types of debt; 2) A lack of competition among servicers leading to higher refinancing costs; and 3) High refinancing costs due to manual appraisals.
Following up, Johnson asked Donovan to detail the “most important steps” that federal agencies and regulators should take to facilitate refinancing under current administrative authority. Donovan said most of the important steps have already been taken, but said he believes the barriers he described earlier have solutions that federal regulators and agencies can implement under their current authorities.
Johnson asked Donovan to explain the effect that putback risk is having on servicer competition and community banks and whether he had any solutions to remedy the issue. Donovan said HARP 2.0 contained several provisions that ease the reps and warranty liability of servicers, but noted that Fannie Mae and Freddie Mac are implementing HARP 2.0 and treating underwater and above-water loans differently, which is still stifling servicer competition.
Johnson also asked if Congress and federal regulators are running out of time to expand HARP. “There’s a real urgency here because interest rates today are at the lowest level they’ve ever been,” Donovan said. “All expectations are that this window of record-low interest rates may not last a significant period of time.”
Shelby, Johnson and Sen. Jeff Merkley (D-Ore.) asked about the administration’s plan to extend FHA approved refinancings to non-GSE loans, specifically requesting more details on who would qualify and how taxpayers would be protected. Donovan said in order to qualify for the program, a homeowner would need to be current on their loan and would need to satisfy a set of criteria, which includes a review of employment records and credit scores. To further protect taxpayers, Donovan proposed the establishment of a new fund – separate from the Mutual Mortgage Insurance (MMI) fund – with a dedicated revenue source to offset losses and a requirement to writedown deeply underwater first and second liens to an LTV ratio of at least 140. Donovan said the benefits of the program far exceed the risks, noting that the maximum estimated cost would be $5 billion.
Shelby and Sen. Kay Hagan (D-N.C.) asked Donovan if he shares their concern for the health of the MMI Fund. Donovan said he is still “heavily focused” on strengthening the fund and pointed to recent measures to improve the fund’s financial standing including premium increases and the new lender indemnification rule. Following up, Shelby asked when FHA expects to reach its statutorily required two percent capital reserve ratio. Donovan said last year FHA expected to restore the two percent capital ratio by 2015, but because of the servicer settlement and the substantial increase in premium fees, Donovan said they may satisfy the ratio requirement sooner than expected.
Menendez asked Donovan to comment on his draft legislation. Donovan said he believes the bill will increase servicer competition and save eligible borrowers “about $1000 a year.” Additionally, he said HUD’s modeling shows that the draft legislation would save the GSEs a “substantial amount,” possibly as much as $10-$20 billion due to lower default rates, and would expand the number of borrowers eligible for HARP by “millions.”
Sen. Bob Corker (R-Tenn.) asked Donovan to comment on whether investors are being unfairly punished by the provisions of the servicer settlement. Donovan said there are issues, but those issues are to be expected due to the size and complexity of the agreement. He said government officials have been discussing investor concerns with the agreement, specifically on the model used to determine whether a loan qualifies for a modification. Since those discussions, Donovan said servicers are using the HARP 2MP model and they are working on ways to writedown second liens when refinancing the first lien.
Hagan asked Donovan to update the committee on the implementation of the servicer settlement. Donovan said Bank of America has already reached out to 200,000 borrowers who they believe qualify for relief under the settlement and he said thousands of families have already received principle reductions. Donovan added that servicers are already implementing the agreed upon servicer standards, and noted his satisfaction with the pace of adoption.
For testimony and an archived webcast of the hearing, please click here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Housing,Hearing Summaries Agency:Senate Banking Committee,Publish Year:2012
AT TODAY’S SENATE BANKING COMMITTEE HEARING, members discussed ways to improve government refinancing initiatives in an effort to strengthen the struggling housing market.
The hearing comes as several Democrats on the committee are pushing to pass legislation that would expand the Home Affordable Refinance Program (HARP) to cover loans originated after May 31, 2009, including the Responsible Homeowner Refinancing Act of 2012, cosponsored by Sens. Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.). Additionally, President Obama is expected to unveil a list of items for Congress to complete in a speech this afternoon; item number two on that list is to “cut the red tape” so that responsible homeowners can refinance.
In his opening remarks, Chairman Tim Johnson (D-S.D.) said the continued lag in the housing market’s recovery is creating impediments to large-scale, long-term housing finance reform. He highlighted the efforts of the Federal Housing Finance Agency (FHFA) and the Obama administration to remove barriers to refinancing, but acknowledged that more needs to be done and urged the committee to carefully consider the Menendez-Boxer proposal to expand refinancing opportunities for borrowers with loans held by the government sponsored enterprises (GSEs).
Ranking Member Richard Shelby (R-Ala.) criticized the Obama administration’s efforts to reform the GSEs and expressed his disappointment with the lack of credible housing finance reform proposals. In closing, he noted the importance of the housing market to the recovery of the overall economy and pledged Republican committee member support to craft bipartisan housing reform legislation.
In his opening statement, Shaun Donovan, Secretary of the Department of Housing and Urban Development (HUD), provided an overview of encouraging housing finance data and declared that the housing market has “turned a corner.” Despite the positive news, Donovan said more needs to be done to help the housing market recover and highlighted a range of barriers preventing homeowners from taking advantage of record low interest rates. In response to those barriers, he said HUD and the Federal Housing Administration (FHA) are currently examining two proposals to bolster HARP and are preparing to implement two equity building initiatives to offset the market impact of vacant homes and foreclosures. In closing, Donovan touted the effectiveness of the Neighborhood Stabilization Program (NSP) at combating home equity loss in the communities most affected by the foreclosure crisis, noting that 75 percent of neighborhoods that received NSP investment funds have seen increased home prices.
Question and Answer
Johnson and Menendez asked if the changes the FHFA made to the HARP program last fall were effective and what barriers to refinancing remain. Donovan said the changes to HARP were “critical,” noting that 750,000 refinancing applications have been filed with the four largest servicers since the changes were made. However, Donovan said there are still three key barriers to refinancing, including: 1) Homeowners that have first liens with an 80 or below loan-to-value (LTV) ratio but have second liens or other types of debt; 2) A lack of competition among servicers leading to higher refinancing costs; and 3) High refinancing costs due to manual appraisals.
Following up, Johnson asked Donovan to detail the “most important steps” that federal agencies and regulators should take to facilitate refinancing under current administrative authority. Donovan said most of the important steps have already been taken, but said he believes the barriers he described earlier have solutions that federal regulators and agencies can implement under their current authorities.
Johnson asked Donovan to explain the effect that putback risk is having on servicer competition and community banks and whether he had any solutions to remedy the issue. Donovan said HARP 2.0 contained several provisions that ease the reps and warranty liability of servicers, but noted that Fannie Mae and Freddie Mac are implementing HARP 2.0 and treating underwater and above-water loans differently, which is still stifling servicer competition.
Johnson also asked if Congress and federal regulators are running out of time to expand HARP. “There’s a real urgency here because interest rates today are at the lowest level they’ve ever been,” Donovan said. “All expectations are that this window of record-low interest rates may not last a significant period of time.”
Shelby, Johnson and Sen. Jeff Merkley (D-Ore.) asked about the administration’s plan to extend FHA approved refinancings to non-GSE loans, specifically requesting more details on who would qualify and how taxpayers would be protected. Donovan said in order to qualify for the program, a homeowner would need to be current on their loan and would need to satisfy a set of criteria, which includes a review of employment records and credit scores. To further protect taxpayers, Donovan proposed the establishment of a new fund – separate from the Mutual Mortgage Insurance (MMI) fund – with a dedicated revenue source to offset losses and a requirement to writedown deeply underwater first and second liens to an LTV ratio of at least 140. Donovan said the benefits of the program far exceed the risks, noting that the maximum estimated cost would be $5 billion.
Shelby and Sen. Kay Hagan (D-N.C.) asked Donovan if he shares their concern for the health of the MMI Fund. Donovan said he is still “heavily focused” on strengthening the fund and pointed to recent measures to improve the fund’s financial standing including premium increases and the new lender indemnification rule. Following up, Shelby asked when FHA expects to reach its statutorily required two percent capital reserve ratio. Donovan said last year FHA expected to restore the two percent capital ratio by 2015, but because of the servicer settlement and the substantial increase in premium fees, Donovan said they may satisfy the ratio requirement sooner than expected.
Menendez asked Donovan to comment on his draft legislation. Donovan said he believes the bill will increase servicer competition and save eligible borrowers “about $1000 a year.” Additionally, he said HUD’s modeling shows that the draft legislation would save the GSEs a “substantial amount,” possibly as much as $10-$20 billion due to lower default rates, and would expand the number of borrowers eligible for HARP by “millions.”
Sen. Bob Corker (R-Tenn.) asked Donovan to comment on whether investors are being unfairly punished by the provisions of the servicer settlement. Donovan said there are issues, but those issues are to be expected due to the size and complexity of the agreement. He said government officials have been discussing investor concerns with the agreement, specifically on the model used to determine whether a loan qualifies for a modification. Since those discussions, Donovan said servicers are using the HARP 2MP model and they are working on ways to writedown second liens when refinancing the first lien.
Hagan asked Donovan to update the committee on the implementation of the servicer settlement. Donovan said Bank of America has already reached out to 200,000 borrowers who they believe qualify for relief under the settlement and he said thousands of families have already received principle reductions. Donovan added that servicers are already implementing the agreed upon servicer standards, and noted his satisfaction with the pace of adoption.
For testimony and an archived webcast of the hearing, please click here.