(MoneyWatch) Things may be looking up for homeowners who owe more on their home than it's currently worth. In a press conference Thursday, Senators Robert Menendez, D-N.J., and Barbara Boxer, D-Calif., announced legislation to help millions of homeowners who are "underwater" on their mortgages refinance at lower rates.
The Menendez-Boxer bill, labeled the Responsible Homeowners Refinancing Act, could save responsible homeowners thousands of dollars each year, according to its sponsors. Boxer cited credit ratings agency Moody's (MCO) in saying the bill could lead to 3 million more refinancings, putting more money in the pockets of homeowners and back into the U.S. economy.
- Extend streamlined refinancing for Fannie and Freddie borrowers
- Completely eliminate up-front fees on refinances
- Eliminate appraisal costs for all borrowers
- Remove additional barriers to competition
- Require second-lien holders who "unreasonably" block a refinance to pay restitution to taxpayers
- Require mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay restitution to taxpayers
- Pay for itself, since reducing homeowners' mortgage payments also reduces default rates and foreclosures, reducing Fannie and Freddie's reliance on taxpayer bailouts
"We know that helping responsible homeowners refinance is a win-win -- for our families and for the economy," Boxer said in a statement announcing the bill. "By introducing more competition into the mortgage market, our bill will ensure that the benefits of refinancing will flow to homeowners struggling to make ends meet, not banks."
Menendez said in a statement that the bill will "knock down barriers and help responsible homeowners refinance at lower rates. It will put thousands of dollars back in the pockets of hard working families and boost our economy."
Despite recent changes to improve the federal Home Affordable Refinance Program, homeowners hoping to capitalize on the historically low mortgage rates are still running into roadblocks. Faulty property appraisals, along with liability and paperwork issues, mean many responsible homeowners are wrongly denied the chance to refinance.
Boxer and Menendez emphasized that taxpayers are not on the hook for any costs that might result from enacting their bill. They say it would pay for itself by reducing default rates on Fannie- and Freddie-backed loans.
In the press conference, Boxer also criticized Federal Housing Financing Agency chief Edward DeMarco, claiming that his policies are resulting in homeowners who are "captive" to their underwater mortgages and calling on him to support the bill.
The legislation comes as the White House is urging Congress to do more to help struggling homeowners. "Congress needs to help the millions of Americans who have worked hard, made their mortgage payments on time, but still have been unable to refinance their mortgages with these historically low rates," President Obama said Wednesday. "This would make a huge difference for the economy."