Oregon Senator Proposes Refi Plan Funded with Bond Sales

About 25 percent of homeowners are underwater, according to the ""latest data"":http://dsnews.comarticles/corelogic-237-of-mortgages-are-underwater-down-from-252-2012-07-12 from CoreLogic, released earlier this month. That's about 12.1 million homeowners who owe more on their mortgage loan than their home is now worth.

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While the government has made a few attempts to help these struggling homeowners through its ""Home Affordable Refinance Program (HARP)"":http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx/ â€" versions 1.0 and 2.0 â€" it has reached just 1.3 million homeowners since its debut in 2009, according to ""data from the Federal Housing Finance Agency (FHFA)."":http://dsnews.comarticles/one-in-five-refinanced-loans-were-through-harp-may-fhfa-2012-07-16

While the FHFA ""reports"":http://www.fhfa.gov/webfiles/24059/Mayrefireport71612F.pdf the program is making progress, one Oregon Senator is taking things into his own hands, announcing a new plan and urging that it be ""piloted immediately.""

""Sen. Jeff Merkley"":http://www.merkley.senate.gov/ (D-Oregon) announced a ""plan"":http://www.merkley.senate.gov/newsroom/press/release/?id=f613efe4-c423-441a-aa62-c59662ab3f80 Wednesday to allow underwater homeowners to refinance at lower interest rates through the creation of a Rebuilding American Homeownership Trust.

Merkley points out that banks won't refinance loans for underwater borrowers because ""there is no one who will buy that loan.""

""So let's change that,"" he says standing before a white board on which he illustrates his plan in simple terms during a ""YouTube video"":http://www.youtube.com/watch?v=l_A33ATlYYs&feature=player_embedded he released Wednesday.

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His plans call for a one-time trust he says is similar to the Homeownership Loan Corporation created during the Great Depression.

As banks refinance underwater homeowners, the trust would purchase the loans from the banks. Meanwhile, the trust would receive funding from bond sales.

""The beauty of this arrangement is that not a single tax dollar goes into it,"" Merkley says in his video.

The trust would support three types of loans: a 15-year loan at a low interest rate, a 30-year loan at a low interest rate, and a two-part loan consisting of a collateralized and an uncollateralized loan. The uncollateralized loan would neither accrue interest nor receive payments for five years.

Merkley's newly released plan has already received some approval.

Acknowledging that ""America's economic recovery is held back by $700 billion in negative equity in the housing market,"" Dr. Joseph Stiglitz, economics professor at ""Columbia University,"":http://www.columbia.edu/ asserts, ""If adopted, this proposal would help to stabilize the housing market, create new jobs, and boost our overall economy.""

Mark Zandi, chief economist at ""Moody's Analytics"":http://www.moodys.com/ called the plan ""a creative and bold effort.""

""Previous attempts to solve this problem have fallen well short,"" Zandi said. ""Senator Merkley's plan is an ambitious one and should be carefully considered.""

""The National Association of Realtors (NAR)"":http://www.realtor.org/ also expressed its support for the plan as NAR President Moe Veissi said Merkley's idea ""is exactly the innovative approach that our nation must take to ensure a sustained housing recovery.""

However, there are some naysayers. One commenter responded to the YouTube video saying the plan is, ""setting up conditions nearly identical to what created the housing bubble.""