HARP 2.0: Banks Get Bigger Benefits Than Borrowers

The newly enhanced refinancing program from the Obama Administration is coming under scrutiny for benefiting big banks more than the borrowers who are trying to take advantage of historically low interest rates.
The big banks conducting the lion’s share of the refinancing, including JPMorgan Chase, Bank of America, Citi and Wells Fargo, could get as much as $12 billion in revenue this year under the Home Affordable Refinancing Program, or HARP 2.0, as the revamped version is known.
However, borrowers who refinance mortgages through HARP stand to save between $2.5 billion and $5 billion this year, according to an analysis by The Wall Street Journal.
New HARP rules make it easier for borrowers to refinance their loans with existing lenders. Critics of HARP say that allows large lenders to “charge a captive customer base above-market interest rates on the refinanced loans,” the Journal reports.
Borrowers refinancing through their existing lender make up about 75 percent of HARP refinancing, according to government figures.
HARP 2.0 has drawn half a million applications as of the last report by U.S. housing officials, who could see up to 2 million refinance applications by year’s end.
The Mortgage Bankers Association said that HARP 2.0 accounts for about 28 percent of refinance applications.
“There’s essentially a monopoly on refinancing,” Housing and Urban Development Secretary Shaun Donovan said at a Senate hearing last month. “Whoever holds their (borrowers’) current loan, whoever is the servicer, they can charge them — and we’re seeing this — very high fees.”
Banks have been charging HARP borrowers as much as 0.53 percentage point more than the market rate on the refinanced mortgages, according to Amherst Securities.
Under the original HARP, lenders refinanced more than 1.1 million mortgages owned or guaranteed by Freddie or Fannie since the program’s launch in 2009. But only slightly more than 110,000 affected underwater borrowers with loan-to-value (LTV) ratios above 105 percent.
The focus of the expanded HARP 2.0 is homeowners current on their payments, but who owe much more on their mortgages than their homes are worth. The new HARP eliminates the LTV ceiling, reduces certain risk-based guarantee fees, and extends the program’s end date to December 2013.

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