By Kevin Chiu
A California Congressman has proposed a sweeping proposal for homeowners to refinance their mortgages at lower interest rates to keep more homeowners in their homes, despite the amount of equity in their property.
“This is a market based solution,” said Rep. Dennis Cardoza (D-CA). “The vast majority of home loans are already guaranteed by the federal government one way or another.” The proposal would allow all mortgage holders with loans guaranteed by Fannie Mae or Freddie Mac, the nation’s two mortgage giants to refinance at lower rates in efforts to reduce mortgage payments and allow more homeowners to avoid foreclosure.
“The federal government (tax payers) is already on the hook for everyone who defaults on these mortgages,” said Cardoza. His proposal would reduce monthly mortgage payments, making it more affordable for mortgage holders to stay in their homes. The foreclosure crisis has topped 4.6-million mortgage borrowers since it began.
Three major mortgage lenders have halted foreclosures in 23 states after court documents showed JP Morgan Chase & Co. and Ally Financial Inc., formerly known as GMAC Mortgage employees may have submitted foreclosure affidavits without confirming their accuracy. Bank of America, the nation’s largest bank has also halted foreclosures in all states where foreclosures are required to be approved by the courts.
A mega refinancing option would be designed to make loans more affordable and put money back into consumers’ pockets to spend on goods and stimulate the economy. Congress won’t have a chance to act on the proposal until after it returns to session following mid-term elections in November.
The plan is similar to an Obama administration proposal that is being implemented by the FHA to help underwater homeowners refinance their homes. But would allow homeowners who have been making timely payments on their mortgages to refinance despite the amount owed on mortgages, and would be less restrictive in underwriting criteria to keep more homeowners in their homes.
The FHA program and other Obama led housing rescue options have led to assisting just slightly more than 1-million homeowners at risk of foreclosure.
Cardoza’s plan has its critics, who say refinancing mortgages in mass would artificially stimulate the housing market. Two Columbia University economists proposed the concept, including R. Glen Hubbard, a member of President George W. Bush team of economic advisors. Hubbard says there would be broad bi-partisan support for the proposal since it would help as many as an estimated 37-million American families.