S. 3085, Responsible Homeowner Refinancing Act of 2012

Cost Estimate
August 24, 2012

As introduced in the United States Senate on May 10, 2012

The Home Affordable Refinance Program (HARP) is administered by the Federal Housing Finance Agency (FHFA) to assist certain homeowners with refinancing mortgages that are guaranteed by Fannie Mae and Freddie Mac, also known collectively as the housing government-sponsored enterprises, or GSEs. S. 3085 would require the FHFA to expand the number of homeowners that are eligible to participate in HARP and reduce the initial costs of the program to homeowners. The bill also would:

  • Relieve lenders of certain representation and warranty liabilities on mortgages that they agree to refinance under HARP;
  • Require junior lien holders or mortgage insurers that block a mortgage from being refinanced under HARP to pay 5 percent of the first mortgage balance except in some cases; and
  • Allow lenders to choose whether to confirm the employment status of borrowers seeking refinancing under HARP.

CBO estimates that enacting S. 3085 would cause more homeowners to refinance their mortgages through HARP than would be expected under current law. Those additional mortgages would affect the federal budget in two ways.

First, we expect that more newly refinanced mortgages would lower costs to the GSEs because with lower mortgage payments, fewer homeowners would be expected to default. Although the GSEs are legally private firms, CBO has considered their operations to be a part of the federal budget since the firms entered conservatorship controlled by the Federal Housing Finance Agency in September 2008. CBO’s estimates of future budget deficits include the estimated net present value of mortgage guarantees expected to be made by the GSEs, including an adjustment for market risk.

Second, entities that hold a financial interest in the mortgages guaranteed by Fannie Mae and Freddie Mac through the mortgage-backed securities (MBS) they have issued would see a decline in the value of that financial interest as more mortgages were refinanced under S. 3085. The Federal Reserve is one of the largest holders of MBS guaranteed by the GSEs. Income from those holdings totaled $39 billion in 2011. That income is largely remitted to the Treasury and reported in the budget as revenues. Under the bill, revenues from that source would decline. In the same way, the value of individual mortgages and MBS held in the portfolios of the GSEs would decline in value if they were refinanced under S. 3085.

CBO estimates that the net budgetary impact of enacting S. 3085 would be insignificant over the 2013-2022 period because the net savings to the GSEs—about $500 million in 2013—would be about the same as the reduction in revenues from the Federal Reserve over the same period. Because the legislation would affect direct spending and revenues, pay-as-you-go procedures apply.

S. 3085 would impose intergovernmental and private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA), but CBO estimates that the costs of mandates would fall below the annual thresholds for intergovernmental and private-sector mandates established in UMRA ($73 million and $146 million in 2012 respectively, adjusted annually for inflation).