The nation's megabanks -- Wells Fargo, JPMorgan Chase and Bank of America -- are cleaning up on the HARP 2.0 program, earning massive profits on the origination of these high LTV refinancings, according to a new report from Amherst Securities Group.
HARP 2.0 ushered in several program changes including letting the original lender off the hook for reps and warrants, which means that any new servicer is fully on the hook for the new mortgage. “This tends to lock a borrower into refinancing with their existing lender, which conveys tremendous pricing power to the banks,” writes Amherst analyst Laurie Goodman.
Goodman notes that the three mega banks – which control 50% of the servicing market according to National Mortgage News – are taking advantage of the program by charging higher rates to HARP borrowers while enjoying “secondary market payups for collateral.”
Amherst writes that mortgage origination can be a hugely profitable business “and it is even more profitable if the servicer charges a higher base rate.”
Goodman writes: “We find it amazing how much energy and manpower was spent in getting the HARP LLPAs [loan level price adjustments] capped at 0.75 points under HARP 2.0, rather than 2.0 points under HARP 1.0, when the banks are looking at 3.5 to 7 points of profit with no discussion whatsoever in the popular press on the topic.”
In its report Amherst breaks down how it derives its profit conclusions, and also points out that lenders are directing borrowers to closing services companies that it may have a stake in, furthering their ability to earn money.
