‘Underwater’ refinance program gaining steam

A proposed refinance plan could serve as a “huge anchor” for underwater homeowners and the economy, according to Northwest legislator about a proposal that is gaining widespread support.

“Millions of Americans are trapped in high-interest mortgages,” Sen. Jeff Merkley, D-Ore., said in a statement. “A bold solution to help these families refinance is the fastest way to get our economy back on track.”

Merkley has proposed a plan that would allow homeowners who are current on their mortgage payments to refinance into a lower interest rate, regardless if their mortgages are guaranteed by the federal government. The plan could help an estimated eight million underwater homeowners.

Borrowers would have the opportunity to refinance into three options: A 15-year mortgage with a 4 percent interest rate; a 30-year mortgage with a 5-percent rate; or a two-part mortgage with a first mortgage up to 95 percent of the home’s value and a second mortgage for the balance (the second mortgage would not accumulate any interest or require payments for five years).

The plan has gained the support of Treasury Secretary Timothy Geithner, who reportedly said at a recent Senate Banking Committee meeting that he would like to launch pilot programs of the proposal. Merkley says the program can launch pilots without Congressional approval.