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Wells Puts Limits on Correspondent/Wholesale HARP Production

With profit margins on HARP 2.0 refinancings sky high, Wells Fargo & Co., is putting caps on the loan-to-value ratio it will accept from third-party lenders, National Mortgage News has learned.

A company spokesman confirmed the news but cautioned that the megabank will still fund HARP 2.0 loans through brokers and correspondents – but will limit the LTV to 105% on loans not currently serviced by Wells.

For now, that business will be handled by its retail arm.

The bank is both the nation's largest lender and servicer. Its lending market share is just shy of 27%, its servicing share, 20%, according to the Quarterly Data Report.

A new report from Amherst Securities found that some megabanks are making 3.5 to 7 points of profit on HARP 2.0 loans, in part because they are charging higher than market rates for the loans.

On industry advisor close to the issue, and who spoke under the condition his name not be used, said on a $200,000 loan (for example) some lenders have the ability to earn $10,000 in profit per loan. “They can earn up to 10 points,” he said, but that profit margin only applies to loans that are already in their servicing portfolio.

The advisor noted that Wells is not doing anything wrong – but simply sees a huge market opportunity to earn a ton of money.

The government sponsored HARP program caters to Fannie Mae and Freddie borrowers who are either underwater or have seen their equity almost evaporate. Only mortgagors that are current, or almost current, on their payments are eligible.

The first version of the program (HARP 1.0) placed LTV caps on GSE refis, but the 2.0 version unveiled late last year, removed all LTV caps – as long as the borrower is not in arrears. Significant rep and warranty breaks also were granted.

The GSEs this week rolled out automated underwriting modules to facilitate HARP 2.0 loans. Up until then, the megabanks had a lock on refinancing their own loans without competition.

Wells spokesman Jim Hines said the bank refinanced more than 343,000 borrowers with loan-to-value ratios greater than 80% through HARP since it was launched in 2009. (See the Monday weekly edition of NMN for more details.)