In a press briefing held in advance of President Obama’s appearance in Reno, Nevada, Housing and Urban Development (HUD) Secretary Shawn Donovan gave a preview of the home refinancing aspects of the President’s “To Do List” for Congress which he will be discussing further this afternoon. Donovan also provided updates on the results of last fall’s executive refinancing initiatives.
Donovan said that last October, the President had included proposals to increase refinancing in the jobs plan he submitted to Congress. Ordinarily, the Secretary said, the economy would be receiving an enormous boost from the record low interest rates so refinancing is a critical step in realizing this. When Congress did not act on the jobs bill the President asked administration officials to identify what could be done without Congressional action to remove barrier to refinancing. Within six weeks, Donovan said, five barriers were identified and the administration moved to remove or mitigate them.
The result has been a 50 percent increase in refinancing applications, roughly one in three of which is for a HARP loan, up from one in ten a year ago. The increase has been even greater in areas hardest hit by price declines and foreclosures. According to data from the Mortgage Bankers Association, refinancing applications are up 240 percent in Nevada, 180 percent in Arizona, and 125 percent in Florida and informal surveys suggest that two of every three refinancing applications in the hardest hit states are for HARP loans.
In January’s State of the Union Address the President laid out the final steps aimed at those borrowers who are doing everything right but still cannot refinance and this week there were three bills introduced in Congress to implement the rest of the President’s program. The first, introduced by Senators Menendez and Boxer, would remove the barriers remaining for some 12 million borrowers with government-backed mortgages. The legislation would help borrowers with second liens, cut red tape and costs such as eliminating manual appraisals, and would increase competition.
Donovan said that currently the servicers who are already handling a mortgage have an incentive to refinance it but other lenders don’t. The goal is to remove the last bar to cross-servicer competition by extending the same streamlined underwriting currently enjoyed by the existing lender to the rest of the market. This would also extend streamlined refinancing steps to all GSE borrowers including those with significant equity and thus less credit risk.
Donovan stressed that these changes are a positive for taxpayers. First they will pump billions of dollars into the economy but they will also lower risk by lowering payments, and ultimately eliminate some of the costs of loans that default.
The second piece of legislation, introduced by Senator Feinstein, would provide simple, low-cost refinancing opportunities to non-GSE borrowers by extended streamlined refinancing to those who have been paying on their mortgages but have private label or bank loans. The new mortgages would be run through the Federal Housing Administration and open up today’s low rates to an estimated three to four million families. Donovan said that this program is an issue of fairness; many responsible borrowers who have done everything they were supposed to do are still unable to refinance simply because of who owns their loan.
The third piece of legislation proposes to give underwater borrowers who decide to refinance a choice of taking the reduced interest in the form of a lower monthly payment or applying those savings to rebuilding equity in their homes. To encourage borrowers to make the latter choice the legislation would cover the closing costs of borrowers, a benefit of about $3,000 per homeowner on average. Taking this course of action would give the majority of underwater borrowers the chance to get back above water in five years or less.
During the question and answer session Donovan was asked about pay-fors for the provisions and said that, while the President had made a proposal to cover the expected cost, the administration is open to looking at other suggestions.
Another reporter referenced a remark from Senator Boxer that Acting Federal Housing Finance Administration (FHFA) Director Edward J. DeMarco already possesses the authority to implement some of the proposals in her bill. Donovan said that FHFA was looking at the idea of eliminating manual appraisals and there might be other provisions, but he added that there is an urgency to the President’s proposals. All of them would help boost the economy, he said, and there is no way of knowing how long we will have these low interest rates. “We need to move the legislation, not wait for an FHFA analysis.
In addition to the refinancing initiatives laid out by Donovan, the “to do list” the President will detail today contains the following:
- Legislation that gives companies a new 20 percent tax credit to cover costs of moving their operations back to the U.S. This will be paid for by eliminating current tax incentives that allow companies to deduct the costs of moving their businesses abroad.
- Legislation that gives a 10 percent income tax credit for firms that create new jobs or increase wages in 2012 and that extends 100 percent expensing in 2012 for all businesses.
- Legislation that will extend the Production Tax Credit to support American jobs and manufacturing and an expansion of the 30 percent tax credit for investments in clean energy manufacturing.
- Legislation that creates a Veterans Job Corps to help Afghanistan and Iraq veterans get jobs as police, firefighters, and other jobs to help their communities.