Hat tip to evansea for sending this along from HW:
The nation’s largest banks are charging borrowers who refinance under the Home Affordable Refinance Program significantly higher rates than other types of refinance loans, according to Amherst Securities Group.
HARP 2.0, announced in November, introduced new benefits to servicers for refinancing their own loans. Different-servicer refinances received only marginal improvements, however, often requiring the new servicer to provide full representations and warrants on the new loan.
“This tends to lock a borrower into refinancing with their existing lender, which conveys tremendous pricing power to the banks,” Amherst’s Laurie Goodman says in an analysis of the program.
Under the program, different-servicer refinancings require servicers to gather more information about borrowers than under a same-servicer refinance.
Banks are also charging more based on loan-to-value ratios. Amherst found that in February, Freddie Mac’s HARP borrowers with loan-to-value ratios from 80 to 90 paid 21 basis points more than borrowers with other types of loans. Borrowers with LTVs of 100 to 105 paid 41 bps more and those with LTVs 105 to 125 paid 53 bps more.
Results for Fannie Mae are similar. In February, HARP borrowers paid a 16 bps premium in the 80 to 90 bucket and a 42 bps premium in the 105–125 bucket.
“Fannie, Freddie and the Federal Housing Finance Administration have given the capacity-constrained originators the ability to extract excess profits from these loans, and the servicers are taking advantage of this opportunity,” Goodman says.
Three banks are taking a liking to HARP loans. Amherst discovered that HARP activity is highly concentrated among Wells Fargo, JPMorgan Chase, and Bank of America.
“There is only one solution — increased competition,” Goodman says. “Let different servicers refinance the borrower on the same terms that are available to the current servicer.”
In January, the three banks comprised 62% of Freddie’s HARP production and 36% of Freddie’s overall production. For the 15-month period from January 2011 to March 2012, they accounted for 64% of Freddie’s HARP production and 50% of Freddie’s overall origination volume.
Results were similar for Fannie Mae business — over the past 15 months, the top three originators comprised 69% of Fannie’s HARP production and 50% of Fannie’s overall production.
Goodman points out that the top three originators increased their dominance in Freddie Mac issuance more than they did in Fannie issuance.
“We believe the reason is that for Freddie Mac, the rep-and-warrant relief applies only to HARP loans, not to borrowers with LTVs less than 80,” she says. “But Fannie offers rep and warrant relief regardless of LTV. Thus, there is a greater incentive for Freddie lenders to refinance HARP loans rather than loans with LTV less than 80.”
seems like this is just another chance for banks to milk people some more.
Solution: do not borrow money to purchase a home. Never borrow money to buy a home, period.
The benefits are enormous: no 30+ years of interest, no PMI, no outrageous fees to banks, and the peace of mind that comes with never, ever having to make a mortgage payment.
Ralph, those aren’t necessarily benefits. You have to compare to what you’d be paying otherwise. In some cases, it’s cheaper to buy than rent, and the mortgage payments never go up like rent would (assuming a fixed-rate mortgage, of course).
Isn’t Ralph saying “pay cash for your home”?
rather than rent?
Don’t listen to Ralph, he is one of the stalkers.
I would buy house with cash, but I don’t think they sell boxes with a view.
I’m ecstatic I didn’t pay cash for my home I bought in November, 2010. The PIT1 is 45% (I had a 20% DP) less than what I was paying for rent (and that was going up probably in Dec/2010). Of course, I had to move for that to happen.
I have a 4% fixed-rate 30-year mortgage. It’s my 4th mortgage (For the our other houses we sold, the rates were 10 1/2% (Hawaii), 7.50 and 7.25% (both Oregon).
This is my last house so I chose a single-story. For me, I’d never pay cash with such a historically low mortgage rate. Why put all that $$$ into a house? The only way you’d get your money out is to sell it.
Like my wise BIL told me a few years ago:”You can’t take the door knobs down to the grocery store if you run out of money. You’d have to sell your home to (hopefully) get out any equity and then rent–which would certainly be higher than the mortgage you once had.”
You’re entitled to your opinion, Ralph, but I sleep very well at night, thank you!
Bof A is making 5 points average GPM, gross profit margin
I have 2 rental SFH that are Freddie Mac Harp eligible and serviced through Citimortgage. One we were able to refi – 94% LTV; owe $306k; 30 year fixed rate at 4.5% that closed 2 weeks ago. The 2nd is also Freddie but the current loan of $331k is 112% of the appraised value. Its on a 6% interest only loan locked for 10 years. Citi said we could also refi under Harp, but I would need to pay down loan $36k because my payments would go up on a 4.625% 30 year fixed (as it would include principal in the monthly payment). I’m trying to battle them saying that Harp guidelines say if you go from I/O to a lower rate fixed loan then its ok if payments go up. Citi is not budging…
FreedomCM, yes, I know Ralph is talking about cash vs. mortgage, but how many people have enough cash to buy a house? For lot of us, it’s a choice between rent now while saving the money to buy with all cash later (if the market cooperates), or buy now with borrowed money. So I think rent vs. buy is a more relevant question.