Primer on proposed refinancing package
WASHINGTON — Though it was pronounced dead-before-arrival by opponents on Capitol Hill, President Barack Obama's new mortgage refinancing package contained far more than legislative proposals. Significant portions of it that have received little media coverage require no prior approval from a hyperpartisan Congress, and could begin affecting consumers within weeks. Here's a quick rundown on key segments of the housing proposals with a handicapping of their likely impact this year:
Going nowhere: If you've got an underwater mortgage that isn't owned or guaranteed by Fannie Mae or Freddie Mac, Obama's marquee proposal to help you refinance into a 4 percent mortgage is not likely to be of assistance. The plan's core concept of funding your rate cut by levying a fee on the largest banks — "based on their size and the riskiness of their activities" — would be a nonstarter even if it wasn't an election year.
Moving fast: Refinancings can be accelerated administratively by key executive branch agencies, and the new program directs them to do so within the next few weeks wherever possible. At the same time, the White House has ordered all the other federal agencies with home buyer programs to clear the decks for streamlined refinancings of existing customers.
Coming your way: a mortgage servicing "bill of rights": Though some reforms already are in place, the White House is requiring all federal housing agencies to enforce minimum standards on mortgage servicers, including mandating immediate interventions with offers of forbearance or loan modification at the earliest hints that an owner is facing financial strains. For borrowers, the plan also requires continuous points of contact with a customer service employee of the servicer plus access upon request to all relevant documents the servicer maintains on the borrower's account. For homeowners who are turned down for a modification or other assistance, the plan requires a guaranteed right of appeal in a formal review process.
Long shot but could happen: The federal regulatory agency that oversees Fannie Mae and Freddie Mac in conservatorship disagrees, but the White House believes that both companies could eliminate all closing costs for large numbers of underwater borrowers who want to refinance into shorter-term loans and rebuild their equity. The idea is aimed at potentially hundreds of thousands of owners whose loans already are owned or backed by Fannie and Freddie. To encourage using their refinancing savings to pay down their principal faster, the program would eliminate closing fees for borrowers who opted for loans of 20 years or less. The refinancers generally would end up paying the same amount monthly on their loans, but the compressed amortization schedule would reduce the principal much faster than a standard 30-year payoff schedule.
Kenneth R. Harney can be reached at email@example.com.