Congress May Not Pass Refinancing Bill


With mortgage rates at near-record lows, one bill winding its way through Congress would allow millions of homeowners to qualify for an immediate refinancing deal, no matter what their income, credit history, or loan-to-value ratio are.

Sound too good to be true? Maybe not.

The bill – H.R. 6218 – was introduced in September by Rep. Dennis Cardoza (D-Calif.), though it’s more accurate to call it a “reintroduction,” as Cardoza first introduced the bill back in Jan. 2009 when it didn’t even come up for a vote.

But this time, Cardoza convened with leading economists and housing industry experts to make the bill more palatable to big lenders like Fannie Mae (Stock Quote: FNM) or Freddie Mac (Stock Quote: FMCC), and to mortgage-backed securities investors.

Under the terms of the bill, any homeowner with low income or a poor credit score, even those not delinquent on their home loans, would qualify for a 30-year, fixed-rate mortgage refinancing at the current mortgage loan  rate, backed by the government. The current 30-year fixed mortgage interest rate is 4.47%, according to the BankingMyWay Mortgage Rate tracker. Fannie Mae said on Oct. 7 that current rates are “at their lowest levels in decades."

Under the bill, government-backed lenders like Fannie Mae and Freddie Mac would issue new mortgage-backed securities, which would provide financial cover for the lending agencies. In a recent interview with Reuters, Cardoza said the securities issuance would ensure that lenders “receive the same cash flow to cover default risk that they do now, passing along the reductions in financing costs to borrower."

"None of the administration’s current housing programs have been far-reaching enough to make a dent in the worst foreclosure crisis in U.S. history," Cardoza added. "Until we see a program that cuts to the heart of the recession, we will continue to see little growth in our economy, families losing their homes, and lifetime investments with lost equity."

The bill is seen as an antidote to failed efforts by the government to keep struggling homeowners in their houses. The government’s Home Affordable Modification Program (HAMP) has only helped 422,000 Americans stay in their homes – far below what the government expected.

What are the chances of the bill’s passage? It’s tough to say. Any bill up for consideration now runs into a brick wall - the Nov. 2nd mid-term elections. Few Congressional representatives would likely take a stand on such a bill so close to the date when their jobs are on the line.

But after the elections are over, and if the housing sector is still suffering (a highly likely scenario), Cardoza’s bill should get its day in court.

While the mortgage industry may not love it, 30 million Americans will surely hope that Congress, no matter who is in the majority, will help provide some relief for troubled homeowners.

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