Ezra Klein: How Congress Could Help You Refinance Your Mortgage

[flpoljunkie]

How Congress could help you refinance your mortgage
By Ezra Klein

(David Zalubowski) To emphasize a point I made in a Thursday post, the Obama administration can’t use Fannie Mae and Freddie Mac to do a mass refinancing of troubled mortgages. They need the Federal Housing Finance Authority, which is currently led by a holdover from the George W. Bush years, to sign off first. But Congress is under no similar restriction. All they need to do is pass S.170, the Helping Responsible Homeowners Act.

The bill, co-sponsored in the Senate by Barbara Boxer (D-Calif.) and Johnny Isakson (R-Ga.), deals with two problems in the current housing market: First, it directs Fannie Mae and Freddie Mac to offer refinancing opportunities to anyone who is current on his or her mortgage, no matter how underwater the mortgage is. That’s the “responsible” part of the bill’s title: If you’re 50 percent underwater and you’re still making payments, you are beyond responsible. You are making a decision to pay more than your home is worth when you could simply walk away.

Second, it waives some of the costs that homeowners often have to pay when refinancing mortgages, including pre-penalty fees, loan level price adjustments and post-settlement delivery fees. That matters, as homeowners who are barely able to pay their bills often aren’t can’t cough up $5,000 or $10,000 to refinance, even if refinancing will save them money in the long run.

What them measure doesn’t do is deal with the “reps and warrants” problem I laid out in this post. In short, it doesn’t protect the banks who are refinancing the mortgages from the mistakes that might have been made by the banks that offered the original mortgages. As that is arguably the biggest practical problem with persuading banks to refinance troubled mortgages, some experts I spoke to were skeptical that this bill would work.

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http://www.washingtonpost.com/blogs/ezra-klein/post/how-congress-could-help-you-refinance-your-mortgage/2011/08/25/gIQAiWGHgJ_blog.html#pagebreak

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1. I'm confused about why we need Congress to pass this?

If this idea is "no-harm, no-foul" and in the best interest of the banks, why aren't they just doing this on their own? It doesn't seem like there's anything blocking the banks from going to their customers and offering a better deal on these mortgages.

Freddie and Fannie seem to be a badly failed experiment that needs to come to an end. Banks need to directly take the risk on the mortgages so we don't have 2008 all over again.

[saras]

2. "Freddie and Fannie seem to be a badly failed experiment that needs to come to an end." WTF?

By that logic, the Federal Government is a badly failed experiment that needs to come to an end.

Strip the corporate corruption out of both programs, and they both do a rather good job of helping more Americans own homes. Until we RADICALLY revise corporate law in general, there's no reason to assume commercial banks are going to behave any better this time than last time, in fact I'd expect them to be faster and more skilled at the same skills that made them so much money last time.

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3. One reason that enabled the banks to behave badly is because Freddie and Fannie would take the fall

The bank would write the bad loan, collect their fees, and then offload this time-bomb on one of those two entities.