Robert Menendez (D-NJ) said there was a need to attack the problems in the housing market from different angles including refinancing, particularly for borrowers who are making payments but who have interest rates on their mortgages well above the 4 to 5 percent available now.  Menendez said he would be introducing a bill called the Responsible Homeowner Refinancing Act of 2012 which would help 17.5 million borrowers with loans through the GSEs but who are trapped in high interest loans because of barriers to refinancing.  His bill, however, does not include any proposal to refinance private loans through FHA or to pay closing costs of borrowers who agree to shorter loan terms.


In addition there are four legislative proposals supported by the administration which could ensure that every responsible borrower has the opportunity to refinance and rebuild equity. The first would guarantee non-government backed borrowers' access to refinancing as long as they are current on their mortgage, meet a minimum credit score, have a loan within conforming limits and are currently employed. This program includes features to minimize program costs and lenders who wanted to refinance deeply underwater loans would have to write down principal balances to reduce stress on the borrower as well as taxpayer risk. While this program would be run through the FHA it would be financed outside of FHA mortgage insurance fund.

The second proposal, sponsored by Senator Menendez, would allow HUD to clear the remaining barriers to refinancing GSE-insured loans. This bill would extend streamlined refinancing for all GSE borrowers irrespective of their loan to value ratio and creates competition between lenders and removes potential hurdles like unnecessary appraisals.

The remaining two legislative proposals are designed to build equity. The first proposes that the average closing costs, about $3,000, be paid by the GSEs if the borrowers agree to refinance into a loan with a term of 20 years or less. This would provide a path for borrowers to get their heads above water faster. The second is the Project Rebuild Act which would further stabilize places where prices have dropped the most and would create 200,000 jobs.


Richard Shelby (R-AL) expressed his concern about the solvency of FHA which the latest actuarial report says has a capital ratio of only 0.24 percent which he called "pretty low" and asked Donovan how he planned to increase the number, when it would be above the statutorily required 2 percent and whether even that was adequate to prevent taxpayers from bailing our FHA in the future. "If a private mortgage insurer held only 2 percent capital," he asked, "do you believe it would be adequately capitalized?

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