The expanded Home Affordable Refinance Program will likely reach more underwater borrowers than its architects originally thought.
"We said we would double the number from what we've already done under HARP, which would mean we'd do another 900,000 under the expanded program. I think we're actually trending above that now," said Andrew Bon Salle, head of the Fannie Mae underwriting and pricing group, in an interview.
The Federal Housing Finance Agency eased HARP eligibility requirements last year for Fannie Mae and Freddie Mac mortgages. It reduced upfront fees, eased buyback risk and eliminated the 125% loan-to-value ratio ceiling. Most banks implemented the changes in March.
Before the expansion was made, more than 838,000 borrowers obtained refinancing under HARP through December. Officials estimated 900,000 more would be added as a result of the rule changes. In the first quarter, HARP refinancings doubled from the previous three months to 180,000 with 80,000 done in March alone.
"There are a lot of things that could change. Right now, the rate environment is still low. But the publicly stated number is 900,000, and I think we'll comfortably pass that," Bon Salle said.
The FHFA would not give an estimate on how many borrowers the program may ultimately reach.
"The numbers look great," an FHFA spokesperson said. "We do not know whether we will surpass our original projections. We cannot control borrower take-up and there is a limited population of eligible borrowers."
As part of the expansion, FHFA granted rep and warrant relief to existing servicers on the old loan. This is pushing more business to the largest banks like Wells Fargo (WFC) and JPMorgan Chase (JPM) who hold large Fannie and Freddie portfolios.
Many mortgage brokers looking to help borrowers whose servicer does not participate in the program complained many lenders are unwilling to finance a new loan because of the risk of buying back the refinanced mortgage should it default.
With more severely underwater borrowers with LTV scores above 125% entering the program, the risk goes up. Wells and other large banks have said they would limit their participation to only their portfolios. As a result, many borrowers can not access competitive lenders.
"The main reason lenders are reluctant to take other lender's underwater loans is the risk of default, either strategic default or due to financial trouble, and the borrowers not having any realistic option of being able to sell the house. It's never a good idea to buy trouble," said F. Allen Maulsby, chief operating officer of Colonial Savings, a servicer based in Fort Worth, Texas.
Bon Salle said more servicers are entering the program every month.
"We're seeing more and more servicers and lenders become involved in the program," he said. "In some months, we are seeing north of 25% of the HARP deliveries from lenders who aren't currently servicing the loan (new servicer) which is a sign of increased competition."
In order to help borrowers navigate the program, he said Fannie Mae set up a hotline for struggling homeowners.
"I want to stress, if there's a borrower who thinks they qualify but the servicer is unresponsive, call us," Bon Salle said. "We want to help you."
Congress is considering another expansion of the program to eliminate all buyback risk for new loans as well. This, both sides of the aisle claim, would inject even more competition into the program and breakdown a near monopoly the largest banks still enjoy.
Passing anything through a gridlocked Congress remains far-fetched however, and Bon Salle signaled that little would be done administratively to the program while the current expansion is still taking root.
"Streamlined refinance programs are mainly created for the lender who has the servicing today, because they can identify the borrowers who qualify and they can do the outreach and they're in the best position to benefit," Bon Salle said. "It's just logical that a streamlined refinance program is going to be dominated by the servicers that have the competitive advantage of the existing relationship when you have to convince the borrower to refinance."