President Obama last night called on Congress to make it easier for families to refinance their mortgages. Noting that many eligible families are having a hard time refinancing, Obama urged Congress to pass a bill as soon as it can that would ease the process and open up refinancing to those currently blocked out:

Part of our rebuilding effort must also involve our housing sector. Today, our housing market is finally healing from the collapse of 2007. Home prices are rising at the fastest pace in six years, home purchases are up nearly 50 percent, and construction is expanding again.

But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected. Too many families who have never missed a payment and want to refinance are being told no. That’s holding our entire economy back, and we need to fix it. Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before. What are we waiting for? Take a vote, and send me that bill.

The bill in question is one proposed by Sens. Barbara Boxer (D-CA) and Robert Menendez (D-NJ). Housing policy expert John Griffith explains here why the bill will help:

Congress needs to step in to help the roughly 18 million more Fannie- or Freddie-backed borrowers who are current on their monthly payments and carry above-market interest rates, according to estimates from Moody’s Analytics. By refinancing to today’s low rates — typically well below 4 percent — many of these families can save an average of $2,600 per year in mortgage payments, according to the Congressional Budget Office. [...]

Mark Zandi, chief economist at Moody’s Analytics, estimates that the proposed legislation would result in 2.9 million more refinancings, helping borrowers save a combined $7 billion annually in mortgage payments. Since many of these borrowers are middle-income families, most of those savings will likely be spent elsewhere in the economy, bolstering growth and creating jobs.

The administration has said that it will implement some changes to refinancing programs by executive order, if Congress doesn’t act.

At the moment, about 11 million homeowners in the U.S. are underwater, owing more on their mortgage than their home is currently worth. President Obama and congressional Democrats have been trying to pass a refinancing plan that would allow homeowners to access historically low interest rates and maybe claw out from beneath their mortgages. But Republicans have, so far, balked.

So according to the Washington Post, Obama may forge ahead with a plan by executive order:

Obama is weighing whether to use his executive authority to give more of the country’s nearly 11 million struggling homeowners a chance to refinance at today’s ultra-low interest rates, according to the Treasury Department and others in talks with the administration on the issue.

Obama already has used his executive powers to make refinancing easier for people with loans backed by government-financed mortgage companies Fannie Mae and Freddie Mac. But the new plan could extend the opportunity to people who are underwater on their privately backed mortgages, which have not been eligible for the same relief.

The plan, if adopted, would likely be aimed at homeowners who have otherwise kept up with their mortgage payments but have been unable to refinance because the loan against their home exceeds its depressed value.

The Treasury Department hinted at this route last month when Michael Stegman said, “we will also consider non-legislative means at our disposal to help responsible non-GSE homeowners access these low rates. To be the most effective, as well as address investor concerns, the legislative route would be preferable to using existing Making Home Affordable program authority. Legislation would facilitate a refinance, whereas under our existing authority, Treasury could only modify the most deeply underwater loans and pay investors for some amount of forgone interest.”

It’s far preferable to pass one of the many proposals various members of Congress have put on the table to bolster refinancing programs, which would not cost taxpayers anything, according to an early analysis by the Congressional Budget Office. Meanwhile, millions of families would receive some help:

But in the meantime, forging ahead with a plan by executive order will at least do something for the millions facing an untenable housing situation.

One year ago tomorrow, the Department of Justice and 40 state attorneys general announced a $25 billion foreclosure fraud settlement with five of the nation’s biggest banks. The settlement was meant to provide substantial relief to homeowners who were improperly (or even illegally) foreclosed upon, and also help others on the brink of foreclosure.

However, the implementation of the settlement has been much more complicated. As the Campaign for a Fair Settlement noted in a statement today:

The National Mortgage Settlement was supposed to help people stay in their homes. But one year later we have yet to see a full accounting of how the money has been spent, states are diverting large portions of the funds to meet their deficits instead of helping homeowners, and the hardest hit — particularly communities of color — are not seeing relief. Short sales and dual tracking continue, and the banks themselves are spending more to move people out of their homes than to keep people in them. The bottom line: a settlement that promised justice and relief for homeowners has instead continued business as usual for mortgage servicers and financial institutions.

As Propublica detailed in this map and Enterprise Community Partners laid out in this report, states all across the country have siphoned off funds meant to aid homeowners and used them for a host of other non-housing related programs. Many states simply plunked the money into their general funds to plug budget gaps.

Several states, meanwhile, have attempted to end the more pernicious acts of mortgage servicers on their own. California approved a Homeowners’ Bill of Rights, for instance, while Minnesota Democrats are attempting to adopt many protections not offered at the federal level.

The Department of Justice and state prosecutors will sue the credit ratings agency Standard & Poor’s for wrongly rating mortgage bonds before the 2008 financial crisis, according to the Wall Street Journal. The suit could come as early as this week, according to the report.

Shoddy ratings from S&P and other agencies played a key role in the collapse of the housing market by signaling that toxic mortgage backed securities were safe investments. While S&P and the other agencies have faced lawsuits from investors, a suit from DOJ would be the first federal action against a ratings agency since the crisis.

S&P said the suit was baseless in a statement to the Journal. “A DOJ lawsuit would be entirely without factual or legal merit,” the statement said. “It would disregard the central facts that S&P reviewed the same subprime mortgage data as the rest of the market — including U.S. government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained — and that every (collateralized debt obligation) that DOJ has cited to us also independently received the same rating from another rating agency.”

A Florida Republican this week reintroduced legislation to speed up the foreclosure process for the third consecutive year, even though similar legislation has sparked outrage from consumer advocates over the last two years.

State Rep. Kathleen Passidomo (R) is touting the new bill as a “more moderate” version of the legislation that has failed each of the previous two years, the Miami Herald reports. But while it includes some provisions proposed by homeowner advocates, it still reduces the the time banks have to process a foreclosure from five years to one, a problematic “fix” that could incentivize more fraudulent processing of foreclosure documents:

Passidomo’s bill aims to speed things up. It requires mortgage lenders to certify that they have the correct paperwork proving they have the right to foreclose. [...]

The measure includes a provision that consumer activists supported last year to limit banks’ ability to go after homeowners for additional debt after a foreclosure.

Banks currently have five years to pursue a so-called “deficiency judgment” against a homeowner. The bill reduces that time-period to one-year.

The average Florida foreclosure, the Herald notes, takes more than 600 days to process. But even though Florida has more foreclosures than most other states, that length is hardly atypical. Nationally, homeowners with mortgages worth less than $250,000 are in default for an average of 611 days before they enter foreclosure. Borrowers with mortgages worth $1 million average 792 days in default before foreclosure begins.

Banks’ past efforts to hasten the foreclosure process led to fraudulent techniques like robo-signing and the forgery of foreclosure documents, which led banks to foreclose on homes they didn’t own, on homes that shouldn’t have been in foreclosure, and on homeowners who were seeking to modify their mortgages. The new legislation would supposedly require banks to certify their paperwork, but banks have previously flouted or gamed such mandates.

Consumer advocates are already drawing attention to the bill. “Might be a good time to start contacting your Florida state representatives in the state House and Senate on this issue,” one activist wrote in an email to followers, the Herald reported. “The more Floridians who oppose this bill and the earlier they oppose it, the better.”

Our guest blogger is David Sanchez, a Special Assistant with the Center for American Progress Action Fund’s Economic and Housing Policy Teams.

New Jersey is facing a twin crisis of foreclosures and lack of affordable housing, but Gov. Chris Christie (R) recently vetoed two bills that would have brightened the outlook for New Jersey residents struggling to afford homes.

The first bill would have empowered New Jersey’s Housing Mortgage and Finance Agency to purchase foreclosed homes and transform them into affordable housing. In doing so, New Jersey would combat the crime and blight brought about by vacant homes, while also increasing housing opportunities for low- and moderate-income families.

The bill had support not only from housing advocates, but from a broad swatch of businesses. What’s more, it would have been implemented without requiring state appropriations.

The second bill would have improved New Jersey’s program to help unemployed or underemployed homeowners make their mortgage payments. This program, funded by a $300 million grant from the federal government’s Hardest Hit Fund program, has badly underperformed for years: according to the most recent statistics, the program has denied assistance to more than double the number of applicants it has helped, and it has spent less than one twentieth of the funds available (although changes have recently been announced that may improve the program). The bill would have mandated that the program respond to applicants and issue aid more quickly.

Christie’s decision to veto these bills is puzzling, to say the least, given the challenges facing New Jersey’s housing market and families. While the housing market is improving in most of the country, it’s getting worse in New Jersey. New Jersey’s percentage of homeowners who are not current on their mortgages increased the most of any state in 2012, and delinquencies remain especially elevated in areas affected by Hurricane Sandy.

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Our guest blogger is Julia Gordon, the director of Housing Finance and Policy at the Center for American Progress Action Fund.

Recent headlines suggest that Fannie Mae and Freddie Mac have launched a brand-new “bailout” program for underwater homeowners. But no such thing has happened.

What may have triggered the speculation is that on March 1, these companies will finish implementing improvements to their short sale and mortgage release policies. A short sale is when a lender gives a homeowner permission to sell their home for less than the amount of the mortgage owed. A mortgage release (sometimes called a “deed-in-lieu-of-foreclosure”) permits a homeowner an opportunity to hand in the keys in return for avoiding the expense and indignity of a foreclosure.

In both cases, the homeowner ends up leaving the house and taking a credit score hit — hardly a bailout.

It is understandable why some might be confused, because Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco, who is currently the conservator for the beleaguered mortgage giants, has characterized short sales as forgiven principal when discussing the issue of principal reduction.

But they are not the same at all. Principal reduction right-sizes the mortgage as part of an effort to help homeowners keep their homes, a result that stabilizes families, neighborhoods, and the housing market. In a short sale, the only homeowner that gets the benefit of the forgiveness is the new homeowner, who gets to buy the home at a mortgage pegged to the real market value. While short sales and mortgage releases are important for the loss mitigation toolbox, they simply do not serve the same function as principal reduction.

In short, although the new policies have usefully clarified and simplified the process for getting a short sale or a mortgage release, they do not represent a fundamentally new approach to helping underwater homeowners and the housing market. Those waiting for FHFA to permit principal reduction — a crucial policy change that could significantly strengthen and lock-in the housing recovery — will just have to keep waiting.

The Consumer Financial Protection Bureau rolled out new rules today to clean up the mortgage servicing industry, which has been at the root of several scandals, including the use of the now-infamous “robo-signers.” The new rules will provide important protections for homeowners, no longer leaving them subject to the most pernicious mortgage servicing practices. Here’s what the rules will do:

– End dual tracking. This practice involves banks starting foreclosure proceedings on a homeowner at the same time that the homeowner is being evaluated for a mortgage modification. The end result is many homeowners lose their homes when they think they are receiving a modification. Under the rule, “Servicers cannot start a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification or other alternative to foreclosure, and that application is still pending review.”

– Force balance transparency. The new rules call for clearer monthly mortgage statements and more advance warnings of changes like interest rate hikes. Servicers must also “promptly” credit payments that homeowners make.

– Limit “forced place” insurance. “Forced place” insurance is the insurance that lenders purchase on behalf of borrowers if they think there has been a lapse in coverage. The policies are often far more expensive than standard home insurance, and servicers receive a cut of the payments. Abuse of forced place insurance became a big industry during and after the buildup of the housing bubble: “From 2006 to 2011, direct earned premiums for lender-placed insurance more than tripled, to $3.1 billion from $954 million.” As the New York Times noted, “the cost [of forced place insurance] more or less ensures foreclosure for a household on the brink; it can also hurt a borrower’s chances for a loan modification.” Under the new rules, servicers must warn borrowers that a forced place purchase will occur and “If servicers buy the insurance but receive evidence that it was not needed, they must terminate it within fifteen days and refund the premiums.”

However, the new rules do not create a single point of contact for borrowers (who often get the runaround at banks by being passed off between different bank employees). The California Homeowner’s Bill of Rights includes a mandatory point of contact, as does a new bill Minnesota Democrats are trying to enact. The rules will not be implemented for another year, leading one housing advocate to say that the CFPB is just “providing mortgage servicers advance notice to do their dirty work.”

Democrats in the Minnesota state legislature (officially members of the Democratic–Farmer–Labor party) are attempting to end one of the more pernicious practices that banks have employed in the aftermath of the housing bubble: “dual-tracking,” during which a lender simultaneously starts foreclosure proceedings on a borrower while assessing the borrower’s eligibility for a mortgage modification. A bill doing away with dual-tracking will be introduced at the state capitol today:

A trio of DFL lawmakers plans on Wednesday to unveil a foreclosure reform bill at the Capitol that would spare Minnesota homeowners some of the “unfair practices” that the representatives believe have become notorious.

“I wanted to do what I could to prevent it from happening again,” said first-term Rep. Mike Freiberg (DFL-Golden Valley), who is introducing the bill in his first week on the job.

Freiberg says he was inspired by a constituent who is fighting to win her home back from foreclosure.

“She was the victim of some difficult, unfair practices,” Freiberg said in an interview Tuesday.

As economic policy and law expert Peter Swire wrote, “the dual-track problem symbolizes why our foreclosure mess is so fundamentally unfair to too many families. Mortgage servicing companies (and the lenders and investors they work for to collect monthly mortgage payments) collect the documents needed to consider modifying the mortgages of many responsible but overburdened families, but then swoop in nonetheless to take the home away.” The Minnesota bill is supported by several community groups and Occupy Our Homes MN. The Occupy Our Homes movement has been integral in preventing unfair foreclosures around the country.

In addition to doing away with dual-tracking, the bill provides other key protections for homeowners, including ensuring that they have a single point-of-contact with their lender and requiring that the lender participate in mortgage mediation (a great system for preventing foreclosures) if the homeowners desires. California codified many of these protections in its Homeowners’ Bill of Rights last year.

Our guest bloggers are Julia Gordon, Director of Housing Finance and Policy at the Center for American Progress Action Fund, and John Griffith, a policy analyst at CAPAF.

The Consumer Financial Protection Bureau today released its final rule regarding the “ability-to-repay” provision included in the Dodd-Frank Wall Street Reform Act. The rule requires lenders to consider whether a borrower can afford a mortgage before giving it to them, and it will make a significant difference in preventing the type of predatory lending practices that crashed the U.S. market and stripped families of trillions of dollars of household wealth.

According to CFPB Director Richard Cordray, who spoke in Baltimore today, the rule could have prevented the worst of the 2008 financial crisis:

I firmly believe that if the ability-to-repay rule we are announcing today had existed a decade ago, many people…could have been spared the anguish of losing their homes and having their credit destroyed. The events that caused the financial crisis might well have been averted. The tragic reverberations that continue to affect so many Americans today would never have occurred…We believe this rule does exactly what it is supposed to do: It protects consumers and helps strengthen the housing market by rooting out reckless and unsustainable lending, while enabling safer lending.

Under the Dodd-Frank law, lenders get special protections from liability if they make loans that are presumed to be safe and sustainable based on certain product features and underwriting practices. This category of loans is called a “qualified mortgage” or “QM.”

Over the past two years, regulators have pored over the finer details of the rule, including the legal implications of stamping a loan as a QM. Mortgage lenders have pushed for full exemption from liability — or “safe harbor” — for these loans, meaning borrowers can’t take the lender to court if it turns out the loan was improperly underwritten. Consumers are understandably leery of that sort of “get out of jail free” card, and have pushed to preserve some rights in the event of blatant fraud or other misconduct.

In the end, the CFPB chose a compromise. Under the final rule, lenders are granted a safe harbor on prime-rate loans deemed as QM, while the lenders are granted fewer protections on higher-priced loans that fit the QM definition. Unfortunately, the large safe harbor makes it more difficult for consumers to enforce this rule than was originally envisioned by lawmakers.

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