HARP 2.0 Program Automated but Constrained?

by Houston Agent

HARP 2.0 revisions hit the market last week, but new analysis on the nature of the refinancings has some questioning their effectiveness.

Fannie Mae and Freddie Mac last week finally integrated HARP 2.0 into their automation systems, and though refinancings are expected to increase dramatically, they could come with some strings attached that previous refinancings did not have.

It’s no news that the Home Affordable Refinance Program, or HARP, has had a troubled history. When revisions to the program were first announced last fall, it had aided nearly 900,000 homeowners in refinancing their properties – an impressive total, not counting the three to four million the program was started to help.

The revisions of HARP 2.0, though, are intending to change that through eliminating many of the restrictions that had limited the original programs. The automation update is perhaps the most notable change, considering that prior to its alterations, lenders could only refinance their own loans manually, which greatly increased the amount of time spent on each refinancing.

Now, with Fannie and Freddie loans subject to automation, lenders can now refinance any loan in a much more efficient manner, and the government is estimating that up to two million borrowers can now refinance into a new GSE-backed loan.

As several media outlets have highlighted, though, there are complementary details to the new HARP refinancings that may compromise, somewhat, the improvements of the 2.0 system. As Kathleen Pender noted in the San Francisco Chronicle, though the basic requirements for HARP 2.0 refinancing are minimal, banks are free to add their own requirements, and some, such as Chase and Bank of America, have refused to refinance loans they do not already service.

Another issue that has arisen is that banks are allowed to charge whatever fees they deem fit for the refinancing, and a study by Amherst Securities Group has found substantially higher fees on HARP refinancings.

In a HousingWire piece on the fees, Laurie Goodman, who works with Amherst, said problems often arise when borrowers must conform to their lenders stipulations, as in the case of Chase and Bank of America.

“This tends to lock a borrower into refinancing with their existing lender, which conveys tremendous pricing power to the banks,” Goodman said.

And the banks fully utilize that power, based on the firm’s analysis. Freddie Mac’s HARP borrowers with LTVs of 80 to 90, for instance, paid 21 basis points more than other borrowers, while borrowers with LTVs of 100 to 105 paid 41 basis points more and those with LTVs of 105 to 125 paid 53 basis points more. Fannie Mae’s borrowers did not fair much better, with LTVs of 105 to 125 paying a 42 basis point-premium for refinancings.

FannieFreddie and the Federal Housing Finance Administration have given the capacity-constrained originators the ability to extract excess profits from these loans, and the servicers are taking advantage of this opportunity,” Goodman said.

Do you agree with her interpretation? And could these additional fees offset any of the possible benefits of the HARP 2.0 revisions?

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