The largest mortgage servicers, including Bank of America, JPMorgan Chase, and Wells Fargo & Co. have been inundated since January with a wave of new refinance applications for the revised Home Affordable Refinance Program. The program, known as HARP 2.0, was designed to help mostly underwater borrowers whose loans are guaranteed by Fannie Mae or Freddie Mac take advantage of low interest rates.
Wells, B of A, and JPM rank first, second, and third, respectively, in terms of housing receivables, controlling 52% of the market, according to figures compiled by National Mortgage News and the Quarterly Data Report.
Banks are most likely to offer refis to their existing borrowers, which requires very little additional work or costs, analysts say. But in comparison to the market rates offered to many new borrowers, the servicers are not lowering their rates as much as they could.
"Most large banks have been quoting higher rates for refinance loans than for purchase loans," says Derek Chen, a director of agency mortgage-backed securities strategy at Barclays. "HARP borrowers are kept captive to their existing servicers and as a result have to pay a higher rate" than new borrowers would.
That bodes well for banks' profits, since they are spending less on the refis than they would on newly-originated loans, while getting more revenue at the same time.
"It's clearly a gift to the largest banks," says Laurie Goodman, a senior managing director at Amherst Securities, who calls the profits the big banks are making on HARP 2.0 refinances "huge."
"The lender can obviously charge a higher rate if he is the only one able to originate the loan," Goodman wrote in a recent research note. (National Mortgage News first reported on the Amherst research note last week.)