Nearly 1 million Florida homeowners who are blocked from refinancing loans under current federal programs could earn lower interest rates with proposed legislative changes to the Home Affordable Refinance Program.
According to a report Tuesday by the Center for Responsible Lending, the changes would save the average Floridian who refinances with the program about $3,035 per year in mortgage payments or $2.9 billion statewide per year.
The legislation, SB 3085, is sponsored by Sens. Robert Menendez (D-New Jersey) and Barbara Boxer (D-Calif.).
If passed, it would be the third tweak to the federal Home Affordable Refinance Program, or HARP, since it was announced in 2009 as a way to help underwater homeowners refinance into lower interest rates. Average interest rates fell to a new historic low last week of 3.56 percent on a 30-year fixed mortgage.
"HARP 2.0 is an improvement, but it's not nearly enough," said Center for Responsible Lending spokeswoman Kathleen Day about the second program revamp announced in the fall. "This would put more money in consumers' pockets, prevent foreclosures and boost the economy."
About 1.3 million homeowners nationwide have refinanced under HARP guidelines, which require homeowners to be current on their mortgage. In Florida, 74,500 homeowners have refinanced with HARP.
But 17.5 million homeowners nationwide with loans guaranteed by federal mortgage backers Fannie Mae and Freddie Mac are paying interest rates above 5 percent, according to a news release from Boxer's office.
The bill she is co-sponsoring is aimed at extending HARP's reach by eliminating borrower appraisal costs and up-front fees, forcing second mortgage holders that block a refinance to pay a fine and increasing competition among lenders for refinance business.
"(The banks) all have a different story and excuse as to why you don't qualify," said Orlando homeowner Cherie Faircloth during a conference call Tuesday. "I have a high credit score. I have no debt. I have done everything right."
But Faircloth owes more on her mortgage than her home is worth and has been unable to refinance.
Homeowners who are severely underwater _ owing 25 percent or more on their mortgage than their home's value _ can have trouble refinancing even though the fall HARP update was supposed to remove equity caps.
Part of the problem for those homeowners, who are considered more risky, is banks are wary to refinance loans outside their portfolio because of increased standards on verifying income and employment. Lenders refinancing their own loans are not subject to the same underwriting standards, or requirements that they buy back bad loans from Fannie Mae and Freddie Mac.
The proposed bill would reduce the verification standards for lenders refinancing loans from other banks in an effort to increase competition.
The bill does not address credit scores, which one South Florida mortgage broker believes is the biggest barrier to refinancing.
Tina Mulligan, treasurer of the Florida Association of Mortgage Professionals, said she would like to see refinances based on mortgage history rather than credit scores, which can drop if a homeowner falls behind on credit card bills or car payments.
"If you are a borrower who has always made their mortgage payments on time, I would like to see them get a break," Mulligan said. "If a borrower is stuck between a rock and a hard place, they let their credit cards go or even their car, but the last thing they want to let go is their home."
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