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Health & Fitness

Proposed Legislation Would Allow Refinance of Homes "Under Water"

A new bill proposed by Senator Barbara Boxer would allow owners to refinance their homes with fewer restrictions than existing programs.

Several times a week, we are asked to give homeowners an estimate of their homes value.  We do this not as a part of a market analysis to sell the home, rather owners are comparing their home's value to their mortgage balance to see if it is possible for them to refinance.  So many homes are under water with the recent downturn in the real estate market.  Even if an owner plans to remain in their home for many years, refinancing isn’t possible when the home is worth less than the loan.  Though prior attempts have been made to address this issue, their limits have restricted the number of owners who qualify for modification.  New help may be on the horizon.  A bill has been drafted that would help responsible homeowners refinance and take advantage of the current historical low interest rates.

An attempt was made in 2009 to address negative equity refinance with the introduction of the HARP program.  The HARP program (Home Affordable Refinance Program) is only for Fannie Mae or Freddie Mac programs and allows an owner to refinance to lower rates if the home value is within 125% of the loan balance.  In addition, it requires high up-front fees be paid as part of the new loan.  While some owners have been able to take advantage of the program, it has not been far reaching enough to make a major impact to many owners.

New legislation is being proposed by Senator Barbara Boxer of California to address the gaps in HARP and allow more owners to refinance.  Her proposal, Helping Responsible Homeowners Act of 2011, would remove the barriers that prevent homeowners from refinancing.   The target of her bill is the homeowner who is not delinquent on their loan, owes more than their home’s value and resides in the home.  Further, the bill removes limits on the negative equity percentage, restricts fees that the current HARP program allows and makes it easier for owners with second mortgages to refinance those as well. 

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Many homeowners are faced with mortgages in the 6%-7% range when current rates are hovering around 4%.  Reducing mortgages by hundreds of dollars per month would allow owners to remain in their homes, reduce the increasing inventory of distressed properties and add disposable dollars to the economy.  All of these are invaluable reasons to pass this bill quickly and relieve the financial stress of many of America’s responsible homeowners.

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