The U.S. Treasury Department and members of Congress are preparing to move forward with plans to expand government-backed refinancing programs to underwater homeowners whose loans are packaged in private-label securities.
Senator Jeff Merkley, an Oregon Democrat, is drafting a bill modeled on a proposal he outlined last year to set up a federal trust to purchase or guarantee refinanced mortgages, according to two people familiar with the discussions who asked not to be identified because the bill hasn’t been introduced.
The trust, as described in Merkley’s earlier proposal, would provide relief to borrowers with privately owned loans and would probably be set up under the oversight of an existing housing agency. If Congress doesn’t pass such a measure, the Treasury is planning to step in to pay for rate modifications for those homeowners.
“We must continue helping as many responsible borrowers as possible refinance into affordable mortgages by taking advantage of today’s historically low interest rates,” Michael Stegman, counselor to the Treasury secretary on housing policy, said during a speech in Las Vegas on Jan. 29. “We must expand streamline refinancing to families whose loans are not guaranteed by the government.”
Pilot Program
Treasury also is poised to approve a pilot program in Oregon that would use federal housing aid to purchase mortgages from private securities and modify the interest rates, a model that could be used in other states, according to two people familiar with the plan, who asked not to be identified because it hasn’t been announced.
The efforts come a year after President Barack Obama called for a universal refinancing program in his State of the Union address. They could prolong a refinancing boom that may be stalling by creating new opportunities for some of the nearly 11 million so-called underwater homeowners who owe more than their properties are worth but are current on their payments.
Underwater borrowers who purchased homes when rates were above the current historic lows can often save hundreds of dollars a month if they refinance, adding to their disposable income and potentially stimulating the economy.
Nearly 1.8 million borrowers have taken advantage of the Home Affordable Refinancing Program for mortgages backed by government-owned Fannie Mae and Freddie Mac since it began in 2009. The Merkley plan would create a similar avenue for an estimated 930,000 borrowers whose loans are in private-label securities and who are current on their payments, according to the proposal outlined last year.
Federal Trust