Washington—Senator Dianne Feinstein (D-Calif.) today introduced the Expanding Refinancing Opportunities Act of 2012, a bill to allow more homeowners the chance to refinance mortgages with insurance provided by the Federal Housing Administration (FHA). The proposal applies to mortgages not already guaranteed by federal housing authorities such as Fannie Mae, Freddie Mac and FHA.

Text of the legislation is available here.

Estimated number of homeowners who would qualify.

“California leads the nation in underwater mortgages and our economy will remain sluggish until we get the housing market moving again,” Senator Feinstein said. “While homeowners with federally backed loans are already able to refinance, many more homeowners cannot renegotiate their loans because they are privately held. This is not fair, it leaves families struggling to stay in their homes and further depresses the housing market.”

The bill has the following effects:

• Allows homeowners without federally backed loans who owe more than their home’s value to receive FHA mortgage insurance. They currently cannot refinance without this backing.
• Creates a $6 billion FHA fund to provide insurance for these mortgages.

The proposal is modeled after a plan presented by President Obama in his February State of the Union address. Senator Feinstein worked closely with the administration on details of the bill, which is expected to save the average homeowner up to $3,000 a year.

In order to qualify, homeowners must:

• Be current on their mortgage, which minimizes FHA’s risk.
• Meet a minimum credit score.
• Have a loan within FHA’s existing conforming loan limit.
• Live in a single-family, owner-occupied home that is a principal residence.
• Have a loan that does not exceed 140 percent of the home’s value.

“This bill will ensure that all homeowners are now on a level playing field when it comes to refinancing their mortgages at today’s historically low rates,” Feinstein added. “It will help meet the president’s goal of expanding refinancing opportunities to as many homeowners as possible, a big step toward preserving home values and improving communities and local economies nationwide.”

The program is fully paid for and will not add to the federal deficit.

Currently, mortgage lenders are paying a 0.1% increase in loan guarantee fees charged by federal housing agencies in return for guaranteed repayment of the loan. That increase is set to expire in 2021—this bill extends the rate for just one more year through 2022, which fully covers the cost of the program.

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