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The Home Affordable Refinance Program (HARP) was supposed to make refinancing easier for millions of struggling homeowners, but as many have found the HARP rules are structured in a way that makes it hard for borrowers to shop for better deals. It also creates a scenario in which low-risk Fannie Mae and Freddie Mac borrowers pay high-risk premiums. President Obama is pushing for new legislation that will address these issues, but experts say an improving housing market and fear of supporting the measure with a “bank tax” will keep Congress from approving it. For more on this continue reading the following article from TheStreet.

The Obama administration is exploring plans to allow more borrowers to refinance at lower rates. Any measure would face stiff opposition in Congress.

Senators Bob Menendez (D, N.J.) and Barbara Boxer (D, Calif.) reintroduced legislation Thursday aimed at removing barriers that prevent borrowers with government-backed loans from getting the lowest possible interest rates.

The Responsible Homeowners Act of 2013 would improve upon the government's current Home Affordable Refinance Program (HARP) by eliminating appraisal costs, reducing upfront fees on refinances, ensuring consistent standards for all lenders and providing equal access to refinancing options to all borrowers, the senators said.

The legislation was introduced last year but failed to win Congressional approval.

"We need to bring much-needed relief now to hard-working, responsible homeowners who are struggling to keep up with their high interest-rate loans -- including thousands in New Jersey whom I have heard from," Menendez said in a release. "We need to do this before interest rates go up again. It's time that Congress finally put families first and give homeowners who have played by the rules a fair chance to refinance at today's low rates."

The administration's current HARP program allows borrowers with loans backed by Fannie Mae and Freddie Mac to refinance at lower rates even if they owe more than what their mortgages are worth, so long as they are current on their payments.

The program, which was expanded in October 2011, has helped 1.8 million borrowers and boosted the refinancing business for banks including Wells Fargo (WFC), JPMorgan Chase (JPM) and U.S. Bancorp (USB).

But borrowers have still not fully benefited from rock-bottom interest rates because the program currently is structured in a way that limits competition among lenders.

Under HARP, a bank that wants to compete with the current lender for business has to go through tougher underwriting criteria and faces greater risk that Fannie Mae or Freddie Mac would force them to repurchase loans should the borrower default.

As a result, the borrower finds he can often get his loan refinanced only with his current lender and is not able to shop around for a better rate. That allows lenders to charge higher rates.

The senators cited a recent study by Amherst Securities Group that found HARP borrowers are paying more than half a percentage point more than borrowers with other types of loans.

The new bill directs the housing-finance agencies to require the same underwriting standards for new servicers as they do for existing ones, leveling the playing field.

HARP also makes distinctions between borrowers with more equity in their homes and those who are underwater. GSE borrowers who have more than 20% equity in their homes are not eligible for HARP refinancing. The bill seeks to ensure that all GSE borrowers, regardless of the equity in their homes, have the same access to low-cost refinancing options.

The GSEs also lowered upfront refinance fees for those with less than 20% equity in their homes. That creates an "economically indefensible situation in which borrowers with significant equity in their homes could face steeper costs in refinancing than borrowers with no equity whatsoever. So borrowers who pose less risk to the GSEs are in fact paying a higher risk premium," the senators said. The bill will prohibit GSEs from charging upfront fees for loans they have already guaranteed.

The bill will also eliminate appraisal costs and waive employment and income verification requirements to further ease the process.

It also intends to expand HARP, which expires at the end of 2013, by another year.

The senators said the bill has broad support, including that of the Mortgage Bankers Association.

It remains to be seen, however, if the bill will win Congressional approval this time.

According to KBW analyst Brian Gardner, the chances of the bill passing in the Republican-controlled House are "quite low."

Gardner says the improvements in the housing market "reduces political pressure on Congress to act."

Next week, President Obama is expected to renew his push for a broader refinancing program in his State of the Union address.

Last year, Obama proposed allowing borrowers with private mortgages who were underwater but current on their payments to refinance at lower rates through the FHA.

But the plan never saw the light of day, with Republicans strongly opposed to the idea of funding the program through a "bank tax."

Now with the FHA in deep financial trouble, analysts believe the chances of winning approval is even slimmer.

The Wall Street Journal recently reported that the Treasury might push a plan to allow Fannie Mae and Freddie Mac to purchase loans from private investors who face an imminent risk of default and allow them to refinance. The agencies would be allowed to charge a higher rate to compensate for the risk of the loan, but some fear that it would increase the risks to taxpayers.

Another proposal would allow borrowers to qualify for a reduced rate under the Home Affordable Modification Program, which wouldn't require legislation and therefore has a higher chance of being implemented.

"If the administration can act without congressional approval, such as the HARP expansion in October, we could see some changes on the mortgage front. But any large program expansions which require congressional approval are, in our view, not likely to go far," KBW's Gardner said in a note.

This article was republished with permission from TheStreet.