Big Banks Reaping Big Benefits From HARP Refinances

Following the collapse of the housing market in 2008-9, many homeowners who owed more on their mortgage than their property was worth were either ineligible for the federal government’s Home Affordable Refinance Program, or were made to jump through hoops by banks who wanted to discourage people from refinancing into lower-interest loans. But recent rule changes have turned HARP into a favorite of the big mortgage servicers.

Banks are suddenly loving HARP refinances for two reasons, reports the Wall Street Journal.

The primary reason is that recent rule changes make it easier for homeowners to refinance with their current lender.

Approximately 75% of HARP participants simply go to their existing lender for the lower-interest loans. But the banks are using this as an opportunity to put these customers into mid-interest loans that are significantly higher than the rock-bottom interest rates being given to new borrowers.

And the five largest mortgage servicers are responsible for about 58% of the mortgage refinance market.

“There’s essentially a monopoly on refinancing,” Housing and Urban Development Secretary Shaun Donovan recently told lawmakers. “Whoever holds their current loan, whoever is the servicer, they can charge them — and we’re seeing this — very high fees.”

Some estimates show that HARP borrowers are refinancing into loans up to half a percentage point higher than the market rate for refinances.

Wells Fargo, which holds around one-third of the refinance market, tells the Journal its rates are “competitive with our traditional refinancing loan options.”

The other reasons banks are now HARP’s best friend is that the refinanced loans represent a reduced risk when they are securitized and sold. This is because the HARP homeowners are less likely to default than they were before, while at the same time there is very little risk that these homeowners will attempt to pay off their loan early.

In all, reports the Journal, lenders could see upwards of $12 billion in revenue this year tied to HARP refinances, while HARP borrowers are expected to save somewhere between $2.5-5 billion this year.

Homeowner Aid Boosts Big Banks [WSJ.com]

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  1. Blueskylaw says:

    So in essence, Big Banks love regulations that make
    them money and hate regulations that cost them money.

  2. Snape says:

    In 2007 I got a 5year fixed interest only ARM at 6.875% with WF. Literally last week I refinanced using HARP. I now have a 30 year fixed at 4.25% However .25% is because I have lender paid mortgage insurance so I guess its an equivalent of 4%

    • Snape says:

      PS it was a nightmare

      • snarkysniff says:

        Perhaps next time dont buy a house that you couldnt afford.. people that got ARM loans crack me up!

        • Snape says:

          I was only 23 then and didn’t understand it all completely, but I have been better off than renting. Also, as I knew it would, my salary has gone up 64% since 2007 and can easily afford the now measly payment. I wonder how well you’ve done in the last 5 years.

          • Awesome McAwesomeness says:

            Yeah, but you’re paying for a house over 35 years if you take the 5 year interest only loan into account. And, you are repaying interest that you already paid b/c you never paid down the principle. You were essentailly renting your house for the first five years you had it. Your salary may be higher now, but that doesn’t mean that you are doing better. If you were doing better, you would have refinanced at 15 years. Since your payments are so measly, you still should’ve been able to afford a 15 year refinance. You would have saved an enormous amount of money with only a few hundred extra a month in payments. It would have more than made up for the stupid choice of the interest only loan.

            • Snape says:

              I could not find anywhere HARP refi for 15 year. I am actually going to do bi-weekly & pay to principle to get it down to about 18.1 years. What I mean that I am better off is that the worse the housing market got the higher the rent prices went. In my 5 years I was paying a good amount less than I could get if I were renting in my same building. Also the interest was tax deductible.

            • Awesome McAwesomeness says:

              Let’s not forget the double fees you paid for the original mortgage and refinance, when you could’ve just done it right in the first place and either waited for a house, or gotten a better loan to begin with.

              Still feeling holier than thou?

        • frank64 says:

          It wasn’t the case here, but ARM are fine if prime loan at lower rates than fixed. Right now you can save around 1/2 a point on a 5/1 ARM Often in the past, you would have been better off even if you kept the house beyond the five years. Now you would need to be careful because 5 years from now the prime probably will be higher.

          It was the 2/28′s based on LIBOR that often meant you had bad credit, no down payment or may have had a ratio problem. They were supposed to use the two years to improve their credit, and use the increase in the value of their house to be able to be approved for prime loans. Often the borrowers did not improve their credit, and used the increased value of the home to take cash out to pay off their credit cards or buy a car.

          • humphrmi says:

            Yes, and what a lot of people who take LIBOR based loans don’t understand is, whereas PRIME is more or less market driven, LIBOR is set arbitrarily by banks. So just because the rate has a nice acronym beside it doesn’t mean you’re getting market rates.

      • homehome says:

        But you got what you wanted at the end right?

        • Snape says:

          2 home appraisals and $1500 extra later. Yes!

          • humphrmi says:

            I ran into the same thing with a traditional refi. The appraisal pictures showed some mold in one bathroom tub near the ceiling, so the lender wanted the mold remediated before they would close. I hired a certified mold remediator, which is basically a high priced contractor who removed and replaced the moldy tiles, stripped & repainted the non-tiled parts, and signed an official document that the room was now free of mold. Turned all this in to the finance company along with pictures of the new, mold-free bathroom, and they demanded another appraisal. After a few testy email exchanges between me and my processor, they finally “stipulated” that the mold issue had been resolved, and set closing. All in all, about $1000 for probably $250 worth of tile replacement and paint, all because the contractor had the official “mold remediator” title, but at least I did manage to get the refi. Oh and that was after they made me explain that 10 months of no work in the previous year was indeed “unemployment” and not just being lazy, and that a P.O. Box I had in another state 30 years ago was not my current 2nd home. Yeesh.

    • dush says:

      And that’s the rip off they are talking about. 30 yr fixed should definitely not be over 4% right now.

  3. comatose says:

    I had a feeling this was the case because my bank (Citi) was so cool and easy about it. I didn’t think they would make something forced upon them almost downright “pleasant.” My rate went from a 6% 30 yr loan (with 22 yrs left) to a 4.75% 21 yr loan. So I knocked off a year and lost 1.25% and saved like $110/month. It was a win-win for me. I think the going rate at the time was a little better but not much (like 4.6%).

  4. Talmonis says:

    Oh look, the results of their lobbying. Bend over lads, “God’s work” is set to use a magnum.

  5. PHRoG says:

    I think it’s time to delete that pic from the flickr pool. Although it’s neat; It’s also been used entirely too much lately. :D

  6. TheMansfieldMauler says:

    So…is HARP now bad? I mean, it was superdupergreat not too long ago. You know – when no one could actually get a HARP loan. It was the answer to saving us from the housing crisis! Oh but now…now banks are making profits profits evil EVIL PROFITS! Can’t have that now, can we?

    • Talmonis says:

      And yet, we have you cheerleading for the bankers and the rest of their millionaire friends at all times. What’s worse? Folks who hope against hope that some kind of working government will do what they’re intended to do, or those who actively work to make it fail?

      • Matthew PK says:

        Is it government’s purpose to backstop all consumer credit?

        • RvLeshrac says:

          “Fuck the plebes, let them starve and go homeless.”

          That’s what you want, right? Because that can’t possibly result in anything terrible like massive civil unrest and violent revolution, during which the wealthy will be the first to die.

          This isn’t about “backstopping credit,” this is about society being forced, by unscrupulous businesses, to take care of those that have been rail-roaded. Banks are refusing to refinance at lower interest rates despite the clear danger this continues to pose to the economic and social future of the country, and all you can do is sit back and bitch about how the government should just fiddle while Rome burns.

          • Matthew PK says:

            I don’t want banks to have special legal status, I don’t know where you got that impression.

            You’re looking for a cure in the hair of the dog, friend.

        • FatLynn says:

          Um, they are backstopping the banks. That’s the big point you are missing, here.

          • Matthew PK says:

            I’m not missing that point.

            Where does the backstopping end?
            The government is backstopping the banks because the government flooded debt markets by backstopping consumer credit….
            So now, to keep things “fair” the government is backstopping banks *and* consumer credit even more…. that’s the ticket!

    • ARP says:

      Obama (your frequent foil) expressed his frustration with the banks because they dedicated almost no resources the program, making modifications very difficult. It appears that under HARP 2.0, they’re getting better but at higher costs to consumers. I don’t think they’re anything wrong with that, as long as they actually dedicate resources to the program.

      • homehome says:

        Why does when someone who isn’t firmly on the consumer side it’s seen as someone is pro-business. Sometimes on this site its too pro-consumer and enough enough pro-fairness or pro-common sense.

  7. BlackWolf2000 says:

    Ohhhhhh. Now I now why I only got 4.25% on a 30 yr. fixed rate last month. I kept reading where 30 yr. fixed rates were less than 4% and dropping but Wells only gave me a 4.25. My mortgage guy at Edward Jones said that we the best he could do. I have a good FICO and met all other criteria.

    I can’t complain about the process though. Mine went very smoothly. Closed at my kitchen table with a notary that came to my house. No appraisal. No attorney.

    Overall, saving $400/month down from a 5.625% 30 yr fixed.

    • Bsamm09 says:

      You have a good FICO or a Great FICO? There’s a difference when it comes to interest rates.

      • BlackWolf2000 says:

        Yes. You are correct.

        My FiCO is only good not great. I asked my EJMG (Edward Jones Mortgage Guy) why my rate was higher than what they were stating on the news. EJMG stated that my rate would only have been slightly better with a “great” credit score. I don’t know how that correlates as far as rates but it could not have meant up to 3/4 of a point difference in my particular case.

        Will be investing and saving the other $400/month.

        • Nigerian prince looking for business partner says:

          I think a lot of it depends on where you live. We refinanced a few months back on a 15-year traditional at 3.6%. My wife and I both have > 800 FICO scores, our house had a 60% LTV ratio, and we shopped around for a mortgage.

          We kept hearing from people who were able to get 3% or less but as much as we shopped around, we could find anything nearly that low.

    • Snape says:

      I have a 790 and got a 4% (4.25% since I had lender paid mortgage insurance) so I’m with you. I got the “thats the best we can do”

  8. MaytagRepairman says:

    I tried to get a HARP 2.0 refinance from my credit union. The rate was good but it came with many of the typical mortgage loan fees. This would have been ok if we were planning on staying in our home for a long time but we want to move out of as soon as we feel comfortable we can avoid a short sale (which we hope is about 2-3 years from now). So I walked away from the loan process and decided to stick with what I had.

    • hobochangbar says:

      We just did a re-fi, 30yr @ 3.875 at our credit union and were happy to leave Chase AND reduce out note by

  9. Matthew PK says:

    Let me understand the problem here:

    People with hugely underwater assets are getting their debt renegotiated for *lower* interest rates (when the capital basis for the loan *does not exist*) and the banks servicing the notes are enlisting them somewhere above prime?

    The outrage here is ridiculous.
    When, ever again in your lifetimes, should you expect a lender to make *near inflation rate* loans on underwater assets?

    The sweeping government broadsword creates additional problems when it was poorly conceived to slash rates on a problem itself created?
    Color me surprised….

    • FatLynn says:

      If they don’t want to loan at good rates, that’s fine, but then they shouldn’t be taking $$ from the government.

      I asked my lender about HARP. They quoted me a rate + closing costs that sounded too high. I asked if that was the best they could do. They said yes. I told them I had the cash-on-hand to lower the LTV, and asked what they could do for me then. Suddenly, they quoted me a better rate for the HARP modification, WITHOUT me having to throw in cash. They would rather put me in the government-backed HARP than in a 80% LTV refi, because the former is less risky for them.

      • Matthew PK says:

        You said:
        “They would rather put me in the government-backed HARP than in a 80% LTV refi, because the former is less risky for them.”

        … so what’s the problem? They are mitigating their risk… it’s what they’re *supposed to do*… they’re basing their fees and rates on the presumed LTV… if you change that value then they may change their quote…. This is how markets work.

        If there’s a problem then perhaps we should all look for some other lending entity willing to give up near-zero interest loans on underwater assets….

        I don’t know what you expect from the largest ongoing systemic government-credit-manipulation in decades…..

        • RvLeshrac says:

          I think we expect them to do better than four fucking percent when we’re lending them TRILLIONS of dollars at zero.

        • FatLynn says:

          No, you didn’t read what I wrote. They told me that the best they could do was 4.5%, and then when I told them I had the means to go somewhere else, suddenly it was 4.25%. They are not “mitigating their risk”, they are profiteering from a government program, at the expense of YOUR tax dollars.

          • Matthew PK says:

            Again, why are you surprised?

            Charter cable company does this too… discounts when you threaten to move to a different provider or cancel…. and they’re profiteering with your tax dollars too because they have a government-enforced monopoly on local services.

            I can’t tell if you’re missing the forest for the trees here, because you’re typically on point… the foundation of the problem is *government participation in consumer credit markets*…. reduce that and you reduce special bank treatment and “profiteering with tax dollars”.

            But nobody seems to want that because it means that lending standards get tighter…. isn’t that the entire point of this ordeal?

  10. Hotscot says:

    I’m confused…I owe 350k on a home valued @ 250k.
    We’re at 6.25%
    I’ve assumed because we’re under water that I can’t refinance.
    Is that still the case?

    • MaytagRepairman says:

      Chances are nil that you will be able to refinance without the assistance of a government program. You should look into the revised version of HARP which is sometimes referred to as HARP 2.0 to see if you qualify. The official government web site is

      http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx

      Here are the rules on the high level –

      You may be eligible for HARP if you meet all of the following criteria:

      The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
      The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
      The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
      The current loan-to-value (LTV) ratio must be greater than 80%.
      The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

    • homehome says:

      Try anyway because nobody knows every single one of the guidelines.

    • misanthropic789 says:

      You can refinance – the entire point of HARP2 was that it removed the 125% loan to value limit so that people like us can refinance. I just finished mine. The only limitation is that the loan must be owned by either freddie mac or fannie mae – you can check their sites to see if they guarentee your loan. If not, you are out of luck, but if so should be able to refi.

  11. Sorta Kinda Lucky Soul says:

    Question for the hive mind: We have two properties, both with mortgages held by Wells Fargo. When I went into the bank for a new ATM card (I have a very small balance WF checking acct) I was told that they could save us at least two to three percentage points on these mortgages if we refi’d. We haven’t done it yet, but curious as to the level of paperwork and hassle this will entail. None of our properties are underwater and we have good to excellent credit (depending upon which of the three agencies you use). One property is our primary residence, another a rental we own. Was told that HARP is also good for investment properties and after doing some online research that appears to be true.

    Anybody out there been through this and, if so, how’d it go?

    • kent909 says:

      About 18 months ago Wells Fargo sent me a letter offering to refinance my loan with them. I would get a lower interest rate and there would be no closing costs. At first it sounded too good to be true. It was true. Still does not make sense to me as I was not at risk of defaulting and I am not upside down. It just seemed to be a very kind and generous offer. My theory is I was one of those people that that knew they could not prove they were the lien holder so by refinancing they could get their paperwork in order.

    • Snape says:

      I’m surprised you can HARP on your second residence. I have WF and just finished refinancing with HARP. I was underwater (worth 160 loan 192)

      HARP has guidelines but Wells Fargo adds on to them. For example HARP says no appraisal.. I needed an appraisal. (2 actually grr)

      HARP also says no to paperwork. I got paperwork. I had to show 2 years employment history and so on. Not a big deal.

      One thing I didn’t like is that they now force me to escrow my insurance payments. I’ve been doing it on my own since I bought my condo in 2007. Now I have to escrow it like my taxes.

      It was a huge headache but worth it in the end. I’m down from 6.875 to 4.25% (with .25% of that being to lender paid mortgage insurance)

  12. Sorta Kinda Lucky Soul says:

    Question for the hive mind: We have two properties, both with mortgages held by Wells Fargo. When I went into the bank for a new ATM card (I have a very small balance WF checking acct) I was told that they could save us at least two to three percentage points on these mortgages if we refi’d. We haven’t done it yet, but curious as to the level of paperwork and hassle this will entail. None of our properties are underwater and we have good to excellent credit (depending upon which of the three agencies you use). One property is our primary residence, another a rental we own. Was told that HARP is also good for investment properties and after doing some online research that appears to be true.

    Anybody out there been through this and, if so, how’d it go?

  13. Mollyg says:

    It is good that HARP is helping homeowners, however there are still massive problems with HARP. One of these is that the banks can add their own requirements to HARP that exceed Freddie Mac or Fannie Mae guidelines.

    Wells Fargo will not do same servicer HARPs for loans that they did not originate. Since borrowers can not control who buys and sells their loans, this disqualifies many homeowners for no legitimate reason.

    • misanthropic789 says:

      Not to mention that freddie mac particularly has some nasty requirements. Make sure you find out what they all are…

  14. krom says:

    “This is because the HARP homeowners are less likely to default than they were before, while at the same time there is very little risk that these homeowners will attempt to pay off their loan early.”

    So the banks are profiting by giving people loans they can afford.

    I’m not seeing a problem here. In fact isn’t that how it’s supposed to work?

  15. misanthropic789 says:

    I just HARP refinanced – I was told the reason my rate was high (4.5%) was because I was at more than 150% LTV. I tried to shop around but got stuck with my original lender for 2 reasons; First, because my loan was owned by freddie mac, they had massive limitations on what I could or couldn’t do and who I could work with. There were a PILE of extra fees if I tried to move away from wells fargo that would have offset any potential savings. Second was the 150% ltv thing; most of the 3rd parties won’t touch more than 150% ltv, or if they will were charging even higher interest rates. I could have bought down my rate for points, but who wants to bring thousands to closing on a house that is way upside down anyway?

    So no, you don’t get competitive rates unless you don’t need HARP in the first place. I only did it because I was at 7 before, so this helps. But believe me, I called around trying to find alternatives, and failed.

  16. fordprefect says:

    Chase literally (well almost) chased us to refi via Harp over a yr ago, went 15-yr no fees & dropped our rate by 1 1/2 percent, saved about 400/month in the process…
    Hardly had to lift a finger, a notary came to our house to go over the paperwork and everything was done in less than 2 wks…..

    ,,,Not bad from my pov