The Mortgage Bankers Association reports a decrease in mortgage purchase activity last week, but an increase in refinancing activity, led by the new version of HARP, which is now in full swing. “The refinance share of mortgage activity increased to 75.2 percent of total applications from 70.5 percent the previous week,” the MBA writes, and about 32 percent of the refis came from HARP loans.
This is thoroughly unsurprising once you realize that banks have figured out a way to legally steal from their customers using HARP.
With profit margins on HARP 2.0 refinancings sky high, Wells Fargo & Co., is putting caps on the loan-to-value ratio it will accept from third-party lenders, National Mortgage News has learned [...]
A new report from Amherst Securities found that some megabanks are making 3.5 to 7 points of profit on HARP 2.0 loans, in part because they are charging higher than market rates for the loans.
One industry advisor close to the issue, and who spoke under the condition his name not be used, said on a $200,000 loan (for example) some lenders have the ability to earn $10,000 in profit per loan. “They can earn up to 10 points,” he said, but that profit margin only applies to loans that are already in their servicing portfolio.
The advisor noted that Wells is not doing anything wrong – but simply sees a huge market opportunity to earn a ton of money.
So far, the big banks have basically closed off HARP refis to competition. This enables them to earn higher profits by charging higher than market rates for the loans. The GSEs changed their underwriting formulas, allegedly to help third parties to refinance the loans. But now Wells (and presumably the other big banks) will cut off the refis they will do with third parties at 105% LTV. This defeats the entire purpose of HARP 2.0, which was to increase the LTV so more underwater current borrowers could access the market for refinancing.
There is a market opportunity for some lender to do a bunch of these refis, even with the roadblocks put up. They’d still make money without ripping off the homeowner and providing current market rates. But if that fails to materialize, expect lots more HARP 2.0 loans and lots more profit for the big banks. And the government will extol the virtues of getting mass refinancing to the public, without mentioning that the banks are taking a huge cut in the process.
UPDATE: Evidence of this can be seen in this data:
HARP mortgage originations rose almost 93 percent from 2011′s fourth quarter to this year’s first quarter, to 180,572 loans. However, only 21 percent of them involved mortgages where the borrower was underwater by more than 5 percent, according to an analysis by trade publication Inside Mortgage Finance.
The entire purpose of HARP 2.0 was to unlock refinancing for underwater borrowers above 105% LTV.