The potential for Home Affordable Refinance Program burnout on JPMorgan Chase serviced collateral could be reflected in slower speeds as early as the next three months, according to Bank of America Merrill Lynch.
At the current capacity levels, JPMorgan (JPM) can refinance nearly all of their HARP eligible borrowers by September 2013.
"Aggregate cohort speeds will remain elevated as other servicers dedicate capacity to refinance borrowers through HARP," said BofAML (BAC) analysts in a MBS Weekly report.
JPMorgan highlighted the banking giant’s intention to reduce headcount in the mortgage unit between 13,000 and 15,000 by the end of 2014.
Additionally, the company noted that HARP accounted for 15% of 2012 volume and expects volumes to drop considerably in 2013 – almost half in terms of percentage of overall volume.
"JPMorgan will remain an outlier and cohort speeds will be impacted as other servicers dedicate further capacity, especially during the first half of the year," according to BofAML.
On Feb. 19, HARP reached a milestone of 2 million borrowers, according to the Federal Housing Finance Agency.
BofAML noted that as many as 1.7 million borrowers are still eligible for HARP, and recognized that only a fraction of these borrowers will take advantage of the program.
"We estimate that at a pace of 100,000 refinancings per month it would take a few months before we see significant HARP burnout. Servicer incentives remain in place to refinance as many of these borrowers as they can," the analysts said.
Furthermore, BofAML noted that their outlook for HARP draws a sharp contrast of JPMorgan with the broader market.
For instance, JPMorgan stated that the company "got out early to try to HARP all [their] customers." As a result, the banking giant was the fastest major HAPR servicer in 2012, according to BofAML.
Moreover, the company – in line with the rest of the industry – has already refinanced some of the better HARP borrowers in 2011 and 2012.
"The remaining borrowers represent weaker credits, lower loan balances and potentially many borrowers who are unlikely to benefit from HARP for one reason or another," the analysts stated.
If this proves to be the case, JPMorgan could be done with HARP sooner than September, unless they acquire a significant HARP mortgage servicing right portfolio. Even if rates go up or “organic refinancings wane,” the company will be able to dedicate more capacity toward HARP, shortening this timeline.
Thus, JPMorgan has excess capacity and will see HARP volumes decline drastically sometime this year, the company stated in its investor call.
Interest only strips backed by JPMorgan serviced HARPable loans are expected to experience the greater impact from burnout.