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THREE REFINANCING BILLS PROPOSE CUTTING RED TAPE TO EXPAND ELIGIBILITY At a time when mortgage rates have hit recordlow numbers, HUD Secretary Shaun Donovan stressed urgency in passing housing refinance bills on President Barack Obama's "to-do" list for Congress. During a teleconference on April 11, which preceded Obama's stop in Reno, Nevada, to boost support for the housing proposals, Donovan outlined the three bills, which he said were introduced to Congress that week. The first bill, sponsored by Barbara Boxer (D-California) and Robert Menendez (D-New Jersey), looks to reduce the cost for refinancing, increase servicer competition, and streamline the refinancing process. The bill would also allow borrowers with a second lien or home equity line of credit to refinance. The second bill, introduced by Diane Feinstein (D-California), proposes to expand eligibility for refinancing to non-GSE-backed loans. Donovan said there are about 3.5 million families who do the right thing, pay their bills, but are locked out of refinancing because they have a private label security loan. The third bill looks to rebuild equity into homes of underwater borrowers. Introduced by Jeff Merkley (D-Oregon), the bill would allow borrowers to refinance into shorter terms with lower interest rates and apply their savings to reduce their mortgage balance. Donovan said the bills would save homeowners an average of $2,500 to $3,000 a year and, overall, will help families, the economy, and even taxpayers by preventing GSE-backed mortgages from defaulting. At a hearing convened earlier that week by the Senate Banking Committee, Donovan presented his case to lawmakers by outlining three barriers preventing a broader swath of homeowners from refinancing, including high fees, inefficient underwriting practices, and appraisals. The hearing quickly turned to servicer competition, which the HUD official said lacks in part because of strict underwriting guidelines under Fannie Mae and Freddie Mac, inflating home prices and keeping refinance opportunities out of reach for many homeowners. "Servicers who don't service that loan are being discouraged from competing to refinance those loans," he told lawmakers, citing a "number of changes" that legislators and regulators could make to remove such barriers. Donovan faulted existing loan representations and warranties for discouraging servicers from allowing borrowers to refinance at historically low interest rates. "Frankly, we think it doesn't make a lot of common sense that a homeowner who actually has more equity in their home is a lower-risk borrower [than] homeowners who may be underwater on their homes," he told lawmakers. "It's a question of fairness to make sure refinancing is available across the board." REPORTS OF SUSPECTED FRAUD INCREASE 31% IN 2011 The number of submissions for mortgage loan fraud suspicious activity reports (MLF SARs) for the full year of 2011 increased by 31 percent to 92,028, according to a report released by the Financial Crimes Enforcement Network (FinCEN). In 2010, 70,472 reports were submitted. During the past several years, MLF SAR filings increased on a yearly basis from only 4,695 filings in 2001. In 2005, the number of filings made an upward climb to 25,988 and then more than doubled by 2009 when there were 67,507 filings. According to FinCEN, the upward trend can mostly be attributed to mortgage repurchase 24 demands on banks since repurchase demands prompted the review of mortgage loan origination and refinancing documents, which is where filers discovered fraud that was then reported on SARs. While there is a continuous increase on a yearly basis, MLF SARs decreased 9 percent for the 2011 fourth-quarter compared to the same quarter a year ago when financial institutions submitted 17,050 reports. The drop is the first time since the fourth quarter of 2010, but FinCEN stated it's too early to call the fourth quarter decrease a trend. According to FinCEN, the report does suggest significant improvement in "mortgage lending due FREDDIE MAC PROFILES LOANS REFINANCED IN THE FIRST QUARTER According to Freddie Mac's first-quarter refinance analysis, 79 percent of homeowners who refinanced their first-lien mortgage either maintained or reduced their mortgage debt. Of these borrowers, 58 percent retained about the same loan amount, which is the highest level reached in the 26-year history of the GSE's analysis, while 21 percent managed to reduce their principal balance. The remaining 21 percent of those who refinanced were "cash-out" borrowers, or those who increased their balance by at least 5 percent. Between 1985 and 2008, the weighted average for the cash-out share was 50 percent. For the loans that were refinanced, the median prior loan life was about 4.3 years. For those who refinanced under a 30-year fixed-rate mortgage, the rate reduction was about 1.5 percentage points, or a savings of about 27 percent in interest rate, which is the largest percent the analysis has recorded. Over the first year after refinancing, the median borrower will save about $2,900 on a $200,000 loan. Commenting on changes made to HARP to include more borrowers and the impact the enhancements made on refinance volume, Freddie Mac's chief economist, Frank Nothaft, said, "HARP loans were 20 percent of Freddie Mac's refinance fundings during the first quarter, the highest share since HARP's inception." diligence since the height of the housing bubble." For example, 40 percent of MLF SAR narratives— where filers explain why an activity appears suspicious—indicated instances where institutions rejected a loan application, short sale request, or debt elimination attempt due to suspicions of fraud. In the majority of income fraud-related SARs, filers rejected a loan application after finding a misrepresentation during the underwriting process. In 2011, 84 percent of reported activities occurred more than two years before the filing with more than 80 percent of MLF SARs involving suspicious activity amounts under $500,000. California had the highest number of MLF subjects per capita in 2011, followed in the rankings by Hawaii, Florida, Nevada, and Washington, D.C., which was counted as a state for the report.

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