FHFA mortgage refi boost expected to be modest
Analysts expect results from the changes to the Home Affordable Refinance Program announced Monday to be modest, but the Obama administration said it is working to expand the number of reachable borrowers even further. The Federal Housing Finance Agency removed a series of barriers to help more underwater borrowers with Fannie Mae and Freddie Mac loans refinance. The agency itself could not give a specific estimate of how many borrowers could be reached but did say the changes could double the 838,000 who already went through the program. "While some potential changes, such as a waiver of reps and warranties on HARP loans, could be meaningful in terms of raising HARP volume sharply, the numbers are still likely to be small relative to the mortgage market as a whole," said analysts at the investment bank Keefe, Bruyette & Woods. They said even if HARP doubles the $125 billion in savings so far, program volume would account for roughly 10% of total mortgages in the U.S., and any prepayment speed increase for investors in Fannie and Freddie bonds would be manageable. "Even if $200 billion in volume comes through HARP 2.0, it is likely to come through in a much longer time frame so the impact on prepayment speeds would be more limited," KBW analysts said. Barclays Capital analysts said the FHFA estimate could be low, considering there are 1.65 million loans originated before June 2009 – the origination cut off is May 2009 – and hold a loan-to-value ratio between 80% and 125%. Another 240,000, they said, are above 125% LTV, which would still qualify as the ceiling was removed. They peg the final eligibility universe to be between 1.9 million and 3.1 million borrowers. "The administrations estimates are much lower than those numbers; we believe the overall number could be higher, given the substantial effect of putback waivers," BarCap said. The Department of Housing and Urban Development Secretary Shaun Donovan said in a conference call Monday the changes would help borrowers save roughly $2,500 per year on their mortgage payment, the equivalent of a massive tax cut, he said. "There is still significant work to be done," Donovan said. "We believe the benefits of streamlining HARP could be applied to those loans below 80% LTV, for example reducing closing costs and other issues even further. We look forward to working with FHFA in coming weeks on this." Donovan also said the Treasury Department began discussion with states that received the $7.6 billion in Hardest Hit Funds to see if new programs could be developed to help more borrowers with closing cost assistance. Analysts at JPMorgan Chase (JPM) said the key to the HARP revamp belongs to Bank of America (BAC). The servicing giant currently holds nearly one-third of 30-year fixed-rate Fannie mortgages originated between 2005 and 2008 (see chart below). Analysts said the rep and warranty waivers, which could be removed from the old loan file and new appraisals by using automated valuation models, is the biggest key to get larger lenders already sorting through billions in put-back claims from the GSEs to push more borrowers into the program. But analysts pointed to the relaxed stipulation of an eligible HARP borrower having not missed a payment in the last six months nor more than one in the last year. Chase analysts said this change would add only 3% to 5% more possible borrowers to the program. In a statement released Monday, Mortgage Bankers Association CEO David Stevens said he welcomed the changes but also warned the new help would not come overnight. "While ultimately helpful, these changes are not going to be a silver bullet to solve all the issues facing our housing market and borrowers who owe more on their mortgages than their homes are worth," Stevens said. "But they will offer lenders another tool to help borrowers and hopefully help bring some stability to housing markets, particularly those most impacted by home value declines." The mortgage division at Chase and the mortgage insurance provider Genworth (GNW) said they would participate in the expanded HARP. "We are pleased to work with FHFA to expand the HARP program because it should help thousands of Chase customers reduce their monthly mortgage payments," said Frank Bisignano, CEO of mortgage banking at Chase. "Genworth does not charge any fees for HARP refinances, nor do we increase our premium rates on HARP loans," the company said in a statement sent to HousingWire Monday. "Our rep and warrant policies are aligned with the expanded waivers announced by FHFA. We are optimistic that the program enhancements announced today will have a positive impact on housing refinance activity." Moody's Analytics Chief Economist Mark Zandi expects the changes to reach an additional 1.6 million borrowers. He recently backed a piece of legislation from Sens. Barbara Boxer (D-Calif.) and Johnny Isakson (R-Ga.) that would have provided these changes. "Allowing these homeowners to refinance at today's record low rates will keep families in their homes and boost the economy by putting thousands of dollars back in the pockets of borrowers," Boxer said Monday. "I urge FHFA to move swiftly to assure that these new policies will help as many homeowners as possible." J.T. Smith, the chief global economist at the boutique investment bank Aristar Funding Corp., said the HARP revamp "is another case of misguided stimulus." "Refis do not create jobs," Smith said. "New home purchases do, and for that to take place the administration needs to focus 100% of its economic time and money on creating an environment conducive for hiring." Write to Jon Prior. Follow him on Twitter @JonAPrior.