Lack of Competition Stifles Refinance Program for Underwater Homeowners

Lack of Competition Stifles Refinance Program for Underwater Homeowners

by Cora Currier ProPublica

Answers to homeowners’ questions about the Independent Foreclosure Review.The administration’s website for the foreclosure prevention program. Provides an FAQ, homeowner examples, and other tools to see whether you might qualify for the program.A list of HUD-approved housing counseling agencies nationwide.Tips for homeowners from the Federal Trade Commission.These rules lay out how mortgage servicers are supposed to conduct the program.A finance and economics blog that provides news and metrics on the state of the housing market.

Some homeowners are getting stuck with relatively high interest rates even after they participate in the government’s program to help them refinance their mortgages. The biggest banks are not lowering rates as much as they could be 2014 and homeowners have few options to go elsewhere.

Analysts say that the big banks are set to make major profits off of the Home Affordable Refinancing Program, also known as HARP, which allows homeowners with loans backed by government-owned Fannie Mae and Freddie Mac to refinance if they owe more than their home is worth.

The program, launched in 2009, is designed to let struggling borrowers take advantage of lower market interest rates. So far, about 1.1 million people have refinanced under the program, which was expanded last fall to make it more attractive for banks and to let more homeowners participate.

Since then, the government says there has been “tremendous borrower interest” and estimates that another 1 million could qualify over the next two years. But while the expansion may let more people refinance, it may not be at the lowest rate possible because the incentives don’t favor competition, according to a new report by an investment group Amherst Securities.

The report says the big banks are able to make a considerable profit from refinancing their existing customers under HARP, and that there is little incentive for them to go outside their own customer base and seek out more HARP business on mortgages that originated with other lenders.

Few other companies have stepped in to offer HARP refinancing for people who’d like to leave their current lender, partly because it is still risky for them to take on the underwater loans, even with the HARP incentives.

The result is that homeowners in many cases are stuck with what they’ve got, Amherst says, and the big banks can charge them more.

Guy Cecala, who runs the publication Inside Mortgage Finance, said that there is “virtually no competition” for the big banks. “It’s normal business practice for mortgage lenders 2014 when you can, you charge a higher interest rate.”

Here’s how this situation came about.

For Banks, Built-In Incentives

Last fall’s expansion of HARP tries to make it more appealing to mortgage lenders, since the initial response to the program fell short of expectations.

New rules removed the cap on how much a borrower could be underwater and still qualify. It also eased appraisal requirements and 2014 critically for banks 2014 removed some of the liability for bad loans that banks had when selling their mortgages to Fannie and Freddie.

The Amherst report points out that the biggest lenders 2014 JP Morgan Chase, Bank of America, and Wells Fargo 2014 are responsible for more than 60 percent of HARP refinancing applications. The report also says the cost of refinancing an existing customer under HARP is minimal.

The big banks already have plenty of demand in-house. As such, it’s easier and more profitable to stick with the loans they already service than to compete for new business, which could result in lower rates for homeowners.

The report says that the extra steps required under HARP to refinance a loan from another lender make the process onerous and risky. A spokeswoman for the Federal Housing Finance Agency (FHFA), which is in charge of HARP, disputed the notion that it’s difficult to sign up new borrowers. “The additional information collected is minimal and appropriate, given that these lenders have no experience with or info on these (new) borrowers,” she said.

JP Morgan Chase, Wells Fargo and Bank of America all confirmed to ProPublica that they have seen an increase in the volume of applications for HARP refinancing since the new rules came into effect. Last month, American Banker reported that banks were scrambling to bolster their mortgage-servicing units to deal with the influx of applications from HARP.

The program is voluntary for banks, and they can place their own restrictions over and above those set by the government.

JP Morgan Chase and Bank of America say they are only doing HARP refinancing for existing customers 2014 not seeking out new business on loans originated by other lenders. Wells Fargo is accepting refinance applications from borrowers at other servicers, but it is putting a cap on the amount that the loan can be underwater.

In January, according to the FHFA, roughly 50,000 people refinanced under the new HARP rules, and HARP’s share of all refinancing increased. Some smaller lenders, especially in states with the worst housing markets, are hoping to jump in and offer lower rates to people looking to leave their current bank, even with the greater risk.

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Comments
2 Responses to “Lack of Competition Stifles Refinance Program for Underwater Homeowners”
  1. the loans have been sold to someone else so good luck, even if you once had a loan that the lender was supose to work with it is now sold to someone else; and good luck on modifications, having thought the persons from Federal Housing were wonderful when I was unable to sell, refinance, and all other issues, turned out it went up! considering they planned on things looking better 2 yrs down the road made sense however that didn;t happen and they refused to assist with any adjustment, or even putting it back as is, and then they chase out and even pay out your good tenant covering the mortgage and cause you too go right back into default, unable to cover too households medical bills??? and whatever!

  2. keepon says:

    Ed DeMarco, head of the Federal Housing Finance Agency — which oversees Fannie and Freddie — has stood in the way of (principal) reductions and he’s claimed the support of Fannie and Freddie. But that’s no longer the case. Even Fannie and Freddie now support principal reductions. It’s time for Ed DeMarco to step aside by signing this Whte House petition:

    https://wwws.whitehouse.gov/petitions/!/petition/push-fannie-mae-and-freddie-mac-issue-principal-reductions-underwater-homeowners/qtS3crg7

    “Senator Demands Answers from Freddie Mac’s Regulator” ( Acting Director Edward DeMarco)
    http://www.propublica.org/article/senator-demands-answers-from-freddie-macs-regulator

    ProPublica and NPR reported on Monday [1] that Freddie Mac, the taxpayer-owned mortgage-insurance company, placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

    Questions the senator put to the regulator, the Federal Housing Finance Agency, include why Freddie made the deals in the first place, when the FHFA learned of the trades, what role, if any, the FHFA played in them, and what the FHFA plans to do about the billions of dollars worth of deals Freddie still has on its books.

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