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Monday Morning Cup of Coffee: HARP 2.0 boom slowing

A look at stories across HousingWire's weekend desk, with more coverage to come on bigger issues:

Refinancing activity at the largest banks may be slowing, though it remains premature to call a peak to the Home Affordable Refinance Program boom, according to Barclays Capital (BCS) analysts.

Prepayment speeds on high-interest Fannie Mae bonds were flat, according to early July data. Freddie Mac bonds showed flat refinancing activity from the previous month.

The largest banks included in the "combined" category of the July graph below showed a big slow down. Bank of America (BAC) continues to ramp up refi speeds on severely underwater borrowers.

The Federal Housing Finance Agency expanded HARP last fall to allow more borrowers deeper underwater to refinance Fannie and Freddie loans. The program spiked in March, but could wane by August.

"There are a few initial signs that HARP 2.0 activity could finally be losing some momentum," BarCap analysts said. "We believe that it is premature to call a peak; however, these developments are a positive for higher coupons."

Litigation expense at JPMorgan Chase (JPM) dropped to just $300 million for the three months ending June 30, according to its financial filing Friday.

The court expenses elevated after the financial crisis as the bank worked through its exposure to the housing bust. Litigation expenses are one third of the level spent in the second quarter of last year and down from $2.5 billion in the first quarter.

However, the bank spent $2.8 billion in litigation costs for the first six months of the year, nearly double the amount during the same last year. The increase was due mostly to the $25 billion foreclosure settlement agreed to in March, of which Chase agreed to pay more than $1 billion to the federal and state governments and another $4.2 billion in relief to homeowners.

Some states with the highest negative equity also have the lowest vacancy rates in the country, according to Capital Economics.

Homeowners unable to sell their home because they owe more on the mortgage than the house is worth are forced to stay put. This pinches supply on the market as demand begins to return (click on graph below to expand).

Hard-hit states Nevada, Florida, Michigan and Arizona all have vacancy rates below the past average.

"The bottom line is that negative equity will continue to weigh heavily on housing market activity, both on the supply side and the demand side," said Capital Economics property economist Paul Diggle. "Nevertheless, it isn't preventing a modest housing market recovery from taking shape."

One bank failed over the weekend.

The Missouri Division of Finance closed Glasgow Savings Bank, and Regional Missouri Bank agreed to assume all $24.2 million in deposits. It also agreed to purchase essentially all $24.8 million in assets.

The Federal Deposit Insurance Corp. estimates the failure will cost the deposit insurance fund $100,000.

jprior@housingwire.com

@JonAPrior

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