Despite numerous government initiatives to help homeowners refinance their mortgages, the red tape still prevents millions of borrowers from taking advantage of today's low rates.
Congress needs to remove these barriers for borrowers, and it must act quickly, says Secretary Shaun Donovan of the U.S. Department of Housing and Urban Development.
"There is a real urgency here," he told reporters Friday. "We don't know how long we will have these record-low interest rates."
Donovan and President Barack Obama are urging Congress to approve legislation to expand existing refinance programs. The measures would provide incentives to lenders and borrowers to increase refinance activity.
Expanding FHA's streamline refis
One of the bills proposes opening up Federal Housing Administration, or FHA, streamline refinances for those who have mortgages that are not insured by the FHA or owned by Fannie Mae or Freddie Mac. The current FHA streamline program is available only to borrowers who already have a mortgage insured by the FHA. If passed, this refinancing program would be available to borrowers who are current on their mortgage and live in the home that is being refinanced.
Another proposal would help borrowers who have mortgages owned by Fannie Mae and Freddie Mac. The borrowers would have access to a streamline refinance process, similar to FHA's streamline program.
Incentive to rebuild equity
The administration wants to encourage borrowers to rebuild equity in their homes. One of the bills would allow borrowers to refinance without having to pay for closing costs, if they rebuilt equity with the money they saved by refinancing. The borrower could use the savings to refinance into a 20-year mortgage, rather than a 30-year mortgage. Borrowers who chose this option wouldn't have to pay closing costs on the loan.
These measures would not only help borrowers, but it would also help the economy and the housing market, Donovan says.
"A broad range of economists and housing markets analysts, including prior economic advisers, have advocated refinancing as a critical step," he says.
Do you think these bills are likely to pass? And would they help the economy?