Lenders Report High Pull-Through Rate on HARP Loans

Applications for HARP refinancings continued to be a sizable portion of the origination pipeline at the end of third quarter, according to a new Federal Reserve survey of bank loan officers.

At least 50% of large and small banks reported that applications for HARP loans comprised 10% to 50% of their refinancing applications in 3Q.

Only two large banks said HARP applications represented more than 50% of their refis.  

The October senior loan officer survey also found that “about 20% of banks anticipated that at least 80% of their HARP 2.0 applications” would be approved and successfully completed.

Another 47% of the banks said they are experiencing a pull-through rate of 60% or higher on their Home Affordable Refinancing Program applications. 

A recent report by Bank of America Merrill Lynch analysts notes that the current refinancing wave is still rising.  Recently collected figures reinforce their view that it will be a “slow and steady” refinancing wave with a “long duration.”  

The loan officer survey found that demand for prime and nontraditional home loans rose during the third quarter.  But the banks reported basically no change in their underwriting standards, which are pretty tight.

The Fed specially asked the banks about their Federal Housing Administration lending policies with respect to purchase mortgages. 

“Two thirds of the loan officers reported that “their bank was about as likely to approve an application for an FHA mortgage from a borrower with a FICO score of 660 as they were in 2006,” Fed said.

In the case of a 620 credit score, two thirds of the banks indicated they would be “less likely” or “much less likely” to approve the FHA loan than in 2006.

The banks cited concerns about put-back risk on FHA loans with low credit scores as the reason for the change in their credit standards since 2006. 

They also cited the impact on their FHA “compare ratio” which is based on early default rates.  FHA lenders with high default rates in relation to other FHA lenders can be bounced out of the FHA single-family program.

A “sizeable percentage of banks pointed to concerns that their bank’s compare ratio could hinder its ability to participate in FHA programs,” the Fed said.