Just nine weeks before the U.S presidential election, the Obama Administration has made a major push to refinance underwater mortgages. The bill promises lenders they would not absorb losses on refinances that go into default and expand the program. California Senator Barbara Boxer first proposed the bill is now urging the senate to vote quickly on the proposal to expand the government’s mortgage refinancing program during its two week session.
Mortgage rate have fallen to their lowest levels in history since the bill was offered, hitting an average of 3.49% on the 30-year fixed rate mortgage before bumping to 3.55% this last week says Freddie Mac. The proposal would make it possible for more homeowners to refinance underwater mortgages with any lender under an existing government program.
Acting Director of the Housing Finance Agency (FHFA) Edward DeMarco was urged by Boxer to end anti-competitive nature of the federal refinancing program in a letter last May. “This lack of competition gives some lenders a captive market and means borrowers are often stuck with higher rates and less favorable terms,” Boxer wrote. “Current policy is rewarding banks with excess profits at the expense of struggling homeowners.”
The Home Affordable Refinance Program (HARP) launched by the Obama administration lenders who want to compete for refinancing business find themselves at a disadvantage compared to the homeowner’s existing mortgage servicer. Consequently, homeowners often only have one choice to refinance through their current servicer rather than shop around for the best deal they can find.
Millions of homeowners who are underwater on their mortgages have tried to refinance under current guidelines without success, despite the near record low mortgage rates. The senate session could be as short as six days, putting pressure on lawmakers to pass the bill. However, even if the proposal is approved the bill may have little chance of becoming law since Republicans who control the House don’t have a proposal for a companion measure in the House of Representatives.