To help more underwater borrowers, Senator Barbara Boxer, D-Calif., has introduced a bill that requires Fannie Mae and Freddie Mac to stop charging high fees on refinancings of guaranteed mortgages with high loan-to-value ratios."These fees are discouraging borrowers from refinancing in a time of historically low mortgage rates, making it more likely that they will eventually default," said the California Democrat.

Under the Home Affordable Refinancing Program (HARP), the GSEs have refinanced nearly 480,000 borrowers with LTV ratios of 80% to 125% since the program began in April 2009.

But only 19,859 of those refinancings involved underwater borrowers with LTVs of 105% to 125%. (Figures as of Sept. 30.) 

Sen. Boxer claims the risk-based fees Fannie and Freddie are charging can add $4,000 to the upfront cost of refinancing a $200,000 loan.

She wants them to drop the risk-based fees, remove the 125% LTV restriction on refinancings, and ensure that borrowers (who are current, but underwater) receive a competitive interest rate.

Last fall, the Amherst Securities Group reported that Fannie and Freddie had capped their upfront fees at 2% on HARP refinancings.  But the banks refinancing those loans are charging "high fees as well," according to ASG senior managing director Laurie Goodman.

Since many of these borrowers have little, if any equity or cash, the extra fees have to be refinanced into the loan amount, which disqualifies some borrowers and reduces the benefit of refinancing for others.

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