Is HARP a government boon for the big banks? Some critics say yes, but the largest providers of mortgages contend that borrowers are benefitting from more incentives to refinance.
HARP, or the Home Affordable Refinance Program, was revised last year to allow even more homeowners who are underwater on their mortgages to refinance. Under the revised program, homeowners are expected to save between $2.5 billion and $5 billion this year, according to Nomura Holdings Inc., because mortgage rates are at historic lows and more homeowners qualify. But banks such as Wells Fargo and JPMorgan Chase could collect up to $12 million in revenue.
The revisions in the HARP program caused a spike in refinancing. The Wall Street Journal reported that 21,593 homeowners who owe more than 5 percent of the value of their home refinanced in March of this year, compared with 6,611 in March of 2011.
Critics of HARP charge that because approximately 75 percent of borrowers refinance with their existing lender, it gives the lenders a captive market and the opportunity to charge higher interest rates. The top five banks -- Wells Fargo, JPMorgan Chase, Citigroup, Bank of America and U.S. Bancorp -- make up 58 percent of the refinancing market. Banks also make a profit by securitizing and selling mortgages. A report from Keefe, Bruyette &Woods showed that the margin on securities averaged 2.1 percent higher the first quarter of this year compared with first quarter 2011 for the five largest mortgage servicers, largely because it's a better bet for investors that homeowners will make their monthly payments.
Fannie Mae and Freddie Mac finance the majority of mortgages and a spokesperson for the Federal Housing Finance Agency, which oversees Fannie and Freddie, says the agency is confident the banks are charging market rates for refinanced mortgages. Meanwhile, some members of President Barack Obama's administration are asking lawmakers to make it easier for borrowers to shop around for rates and refinance with lenders other than the originator of their loan.
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