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No Sale on Housing Refinance Plans in Congress

Scott J. Ferrell/CQ Roll Call File Photo
Menendez, left, and Boxer modified their bill to address industry and GOP concerns, and the move won the endorsement of the Mortgage Bankers Association.

The White House has pushed the Federal Housing Finance Agency, which regulates government-backed mortgage giants Fannie Mae and Freddie Mac and has immense power over the mortgage market, to encourage more mortgage modifications in an effort to help struggling homeowners avoid foreclosure.

But Edward J. DeMarco, a holdover from the George W. Bush administration who leads the agency, has shrugged off some of the administration’s proposals, arguing that they would add costs and more risk to taxpayers. The mortgage giants have received more than $180 billion in public funds since they were seized by the federal government in September 2008 at the height of the crisis.

In October 2011, however, the agency expanded the Home Affordable Refinance Program to allow borrowers with loans held by Fannie and Freddie to refinance even if they are underwater on their mortgages.

The change has boosted refinancing, but many Democrats want further action. In his 2012 State of the Union address, Obama called on Congress to pass new legislation to let underwater home-owners refinance, even if their loans are not backed by the federally controlled mortgage giants. “While government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief,” Obama said. “No more red tape. No more runaround from the banks.”

In part thanks to Bernanke’s Fed policies, interest rates have stayed in the cellar — the average 30-year fixed-rate mortgage hit an all-time low of 3.34 percent in November — but millions of Americans are locked into mortgage payments at higher rates.

Obama’s plan would let these people refinance and, he said, put an extra $3,000 per year into homeowners’ pockets. He proposed paying for the program with a fee on the largest financial institutions, giving “those banks that were rescued by taxpayers a chance to repay a deficit of trust.”

The proposal received a frosty response from GOP lawmakers. House Financial Services Chairman Spencer Bachus, R-Ala., said the program was “not a serious plan to help the nation’s housing market.”

Obama also hopes to include mortgage relief in a fiscal cliff deal. He included his mortgage refinance program for underwater borrowers in a proposal on the fiscal cliff tax and spending issues last week, according to a GOP aide familiar with the White House offer.

Gridlock Persists

Senate Democrats have taken up the cause, but with little progress to show for it.

Sen. Robert Menendez of New Jersey and Sen. Barbara Boxer of California introduced new mortgage refinancing legislation in May. Their bill was more modest in that it would only target loans backed by Fannie and Freddie. It was also designed to help those borrowers who are not underwater but still face barriers from lenders that discourage refinancing. For example, the bill would eliminate appraisal fees when borrowers refinance and would prohibit Fannie and Freddie from charging risk-based fees for refinancing loans they already guarantee.

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