“Too many people like Ellen, Vartan and Bob, who’ve worked hard and played by the rules all their lives, find themselves trapped in sky-high interest loans,” said Senator Menendez. “And yet, they can’t refinance at today’s record low rates and put that extra money back into their pockets or towards the things that matter, like home or car repairs, school or diapers. That’s why I’m fighting to pass a bill that would knock down these barriers and give middle class families some real relief.”
Sitting around the dining table at Ellen Kovac’s home in Elizabeth, Menendez and Donovan heard the stories of struggles in trying to refinance from Ellen, Vartan Petoian of Cliffside Park and Bob Koffler of Secaucus.
More about these homeowners:
Ellen Kovac of Elizabeth purchased her home in 2002 for about $245,000 at an interest rate of over 5%. She put about $140,000 down and has an adjustable rate mortgage. Ellen’s monthly mortgage payment is close to $500, plus over $600 a month she pays towards escrow to handle taxes and insurance – and that’s after she made a large payment to reduce her principal. Ellen, who has a Master’s degree, says it’s a struggle to make her $1,100 payment every month as she is underemployed, working three jobs (including as an adjunct professor) that combined don’t pay what she used to earn.
To reduce her monthly payment, Ellen has tried to refinance multiple times. Each time, Ellen faced barriers to refinancing: either her principle balance was too low to qualify for refinancing under HARP or she could not afford the thousands of dollars in fees. If Ellen was able to refinance, she says she would save an estimated $1,200 a year which she would use to make repairs on her 11-year-old car and purchase a new pair of walking shoes so she can stay active.
Vartan Petoian of Cliffside Park owns a one-bedroom condo where he lives with his wife and 7-month-old son. They purchased their home in 2006 for about $280,000 at an interest rate of 6.625%. Their monthly mortgage, including condo fees, is about $2500 per month. Like so many other New Jerseyans, the Petoian home is underwater – worth tens of thousands of dollars less than what they paid for it.
Vartan and his wife recently started a small business after being laid off during the recession. Even though their income is half of what it used to be since going out on their own – they have never missed a payment, pay their mortgage on time and have a good credit score. The barriers to the Petoian’s refinancing? The fees. Vartan was asked to pay nearly $13,000 in up-front fees. If this barrier was removed and they could refinance, Vartan says they would save about $500 per month to buy diapers, other necessities and make repairs to their home.
Bob Koffler owns a condominium in Secaucus where he lives with his wife. They purchased their home in 2004 for about $575,000 at a 6% fixed interest rate and have a monthly payment of close to $2,800. The Koffler home is currently underwater – worth approximately $30,000 to $50,000 less than what they paid for it, largely due to a nearby foreclosure in the neighborhood.
Nearly five years ago, Bob was laid off from his job as Vice President of a computer company and has had a hard time finding a job due to his age and current economic conditions. Bob’s unemployment status is his barrier to refinancing. Even though he has never missed a mortgage payment and has a credit score of over 800, Bob’s been unable to refinance and save more of his retirement money.
To remove the barriers preventing borrowers who are making their payments on time from refinancing their loans at the lowest rates possible, Senator Menendez joined with Senator Barbara Boxer (D-CA) and introduced S. 3522 on September 10th. This bill, The Responsible Homeowner Refinancing Act, will build on the changes to HARP and further expand opportunities to access historically low interest rates for borrowers who make their mortgage payments on time.
Specifically, the Senators’ plan would:
Remove barriers to competition. This bill would direct the GSEs to require the same streamlined underwriting and associated representations and warranties for new servicers as they do for current servicers, leveling the playing field and unlocking competition between banks for borrowers’ business.
Guarantee equal access to streamlined refinancing for all GSE borrowers. This bill would ensure that all GSE borrowers who are making their payments have the same access to simple, low-cost refinances, regardless of the level of equity they have in their home. This is not only a simple matter of fairness- it also makes good business sense. Providing a single set of rules for all lenders and all GSE borrowers will simplify the process for all involved, allowing all lenders to offer a single, streamlined program to all GSE borrowers who have been paying their loans on time.
Eliminate up-front fees completely on refinances This bill prohibits the GSEs from charging up-front fees to refinance any loan they already guarantee, which is also in the best financial interests of the GSE’s and taxpayers.
Eliminate appraisal costs for all borrowers. This bill requires the GSEs to develop additional streamlined alternatives to manual appraisals, eliminating a significant barrier and reducing cost and time for borrowers and lenders alike, especially in rural areas. Again, this just makes good economic sense. Taxpayers are already on the hook for these loans and will benefit from providing the borrowers with an easier path to refinancing.
Further streamline refinancing application process. HARP already restricts participation to borrowers who are current on their loans and have demonstrated a commitment to making their payments on time – even in the face of loss of income or employment. There is thus no reason to require proof of employment or income for these loans, particularly given that the GSEs already retain the risk, and that risk will only go down with lower interest rates. So this bill eliminates employment and income verification requirements, further streamlining the refinancing process and removing unnecessary costs and hassle for lenders and borrowers alike.
Save taxpayers money. According to the CBO, the bill pays for itself through reduced default rates on GSE loans, which saves taxpayers.
Homeowner Ellen Kovac welcomes Senator Menendez (L), Secretary Donovan and Mayor Bollwage to her Elizabeth home.
Homeowners discuss their barriers to refinancing with Senator Menendez, Secretary Donovan and Mayor Bollwage.
Senator Menendez stands in front of Ellen Kovac’s home to discusses how his bill would help with her refinancing efforts – which to date have been unsuccessful.
L to R: Senator Menendez, Secretary Donovan and Mayor Bollwage.