What if you could give the economy a huge shot in the arm without costing the taxpayers anything extra? What if, at the same time, you could make it easier for people now living at the margins to stay in their homes?
For the past two years, mortgage interest rates have been falling to the lowest levels in 50 years. Indeed, 30-year fixed-rate mortgages recently hit successive new lows.
Yet refinance applications are historically low. In fact, it’s pretty tough to get approved for a refinance these days. Lenders are questioning every single line item on the application, from the appraisal to your credit history. And watch out if you’re self-
employed or have a small passive investment in a start-up business or you’re buying in a condominium association with any type of litigation. Anything out of the ordinary is cause for rejection — and, if not rejection, just delay, delay and delay.
What’s going on? With interest rates this low, lenders should want to lend and borrowers should want to borrow. But nothing is quite that simple.
Sens. Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.) announced legislation to help millions of responsible underwater homeowners refinance at lower rates. The Responsible Homeowners Refinancing Act is designed to help as many as 3 million homeowners save as much as $3,000 per year by refinancing at today’s historic low interest rates.
That’s a $9 billion shot in the arm for the U.S. economy. While not a huge amount (in the context of a $14 trillion dollar budget), it’s the kind of cash that economists prefer, because it’s often used to buy the necessities of everyday life, such as food, clothing and gas. It could also be used to help homeowners pay down debt.
In a news conference, Boxer explained how the bill could ease borrowers’ refinancing troubles by extending streamlined refinancing for Fannie and Freddie borrowers, eliminating upfront fees on refinances, eliminating appraisal costs for all borrowers, removing additional barriers to competition, requiring second lien holders who unreasonably block a refinance to pay restitution to taxpayers, and requiring mortgage insurers who unreasonably fail to transfer coverage to refinanced loans to pay restitution to taxpayers.
Moreover, the legislation would pay for itself, the senators argue, by reducing default rates and foreclosures, and therefore reducing Fannie’s and Freddie’s reliance on taxpayer bailouts.
It all sounds great: Cash gets pumped into the economy as homeowners are more easily able to afford their homes. By not going into foreclosure or doing a short sale, all the other homeowners in the neighborhood benefit as home values firm up. The housing market gets rewired and hopefully reinvigorated.
Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is “Buy, Close, Move In!” Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, IL 60022, or contact them through thinkglink.com.