The President today is in Reno, Nevada, and he’s going to take a victory lap on HARP 2.0.
President Obama will announce new figures Friday showing a dramatic spike in the number of Americans taking advantage of federal programs designed to help struggling homeowners and stabilize the lagging housing industry, administration officials said Thursday.
The numbers, officials said, demonstrate the success of programs Obama has implemented to let more homeowners refinance their homes at a time of historically low interest rates. And they demonstrate the need, they said, for Congress to take still more action to give even more Americans the same opportunity [...]
According to the White House, refinancing applications in three of the hardest-hit states in the housing crisis, Arizona, Nevada and Florida, have ballooned since Obama announced programs to let more homeowners who are underwater on their loans qualify for refinancing with lower, more affordable rates.
The raw numbers, discussed on a conference call with HUD Secretary Shaun Donovan, are that applications are up in Nevada 240%, Arizona 180% and Florida 125%. That data comes from the Mortgage Bankers Association. Keep in mind these are APPLICATIONS for HARP 2.0 loans, not the actual refis themselves. Just this week, the Wall Street Journal described the long backlog of refi applications. Touting the applications doesn’t mean a great deal.
That’s especially true because the design of HARP 2.0 has artificially profited banks at the expense of homeowners. The banks, in a very strange and apparently coordinated manner, have unilaterally decided that they will only perform HARP refis for underwater borrowers on the loans they already service. This eliminates competition for those loans. And the immediate effect of that is higher costs for underwater borrowers, who are trapped and cannot get a refi with anyone but their old servicer. So the servicers raise the interest rates they offer on the refi. In some documented cases, the closing costs, which are almost entirely profit for the bank, are higher than the savings on the refinance.
To his credit, Donovan addressed this on the conference call today. While he fudged at the start and threw out that an underwater family can save $2,500 to $3,000 a year on average with refis (that’s if they were taking advantage of actual interest rates and not the elevated ones from HARP 2.0), he added that he would like to see three bills pass Congress that would expand the refi programs. The first concerns expanding the Fannie/Freddie HARP changes to the entire mortgage market, and it’s being introduced by Dianne Feinstein. The second would reduce closing costs if the borrower takes the savings from HARP and uses it to build equity, and it’s being carried by Jeff Merkley. And the third, from Barbara Boxer and Bob Menendez, would specifically address the lack of competition on HARP 2.0 refis of underwater borrowers on loans owned or backed by Fannie Mae and Freddie Mac. “Lenders have big incentives to refinance their own loans, but other lenders don’t have incentives to increase competition,” Donovan said. “That results in higher costs for borrowers. (Boxer and Menendez’ bill) would remove some of the last barriers to cross-servicer competition.”
I didn’t get to ask a question on the call. But nobody has been able to credibly explain what these barriers to cross-servicer competition are. Boxer and Menendez don’t really explain it in their bill. In this video of a hearing with Boxer and Menendez, it again doesn’t really get explained. There’s some talk that other servicers would have to more fully underwrite the refis, while the current servicer can just do a verbal commitment because they have all the data. But that’s like saying that lenders don’t make loans because they’re too hard. If there’s money to be made on new business – and there is – these are not barriers. I would argue that the problem is the DESIGN of HARP, which again gives the banks discretion to implement the program. The fact that every bank up and decided to only refi the loans they service under HARP smacks of collusion. And nobody has sanctioned them for it.
The party with the best opportunity to sanction the banks for this collusive behavior is the Federal Housing Finance Agency, which oversees Fannie and Freddie who own these loans. And predictably, under questioning later in the call, Donovan admitted that FHFA has practically all the authority in the Boxer-Menendez bill already. In other words, Ed DeMarco could “remove” these barriers to cross-servicer competition right now if he so chose. Donovan said that “we will continue to work with FHFA” on getting those barriers removed, and he stressed the urgency of working quickly, while interest rates remained at historic lows.
Clearly there’s a lot of tension between what the Administration and this independent regulator at FHFA want to do. If that’s a real problem, of course, the President could fire Ed DeMarco and replace him with a recess appointment. But the larger point is this: The White House has had the authority to do a mass refinancing program for three years-plus. They have implemented it slowly, ineffectively, and in such a way that banks could game the system. And though they are trying to argue that they need the help of Congress to fix the system, they actually don’t.