Competition is heating up among banks in the government's revised Home Affordable Refinance Program, which has helped spark a refi boom and contributed to strong mortgage profits at most banks.
"We've been pretty aggressive" with direct mail solicitations and newspaper ads, says Bob Lewis, a senior vice president and the head of mortgage lending at Fifth Third Mortgage. His loan officers also are combing through files and encouraging past customers to refinance if they haven't already.
The unit of $117-billion-asset Fifth Third Bancorp in Cincinnati was the sixth-largest HARP lender in the first quarter. Refinancings through HARP 2.0 now make up 49% of the bank's total refinancing volume, Lewis says.
The bank's first-quarter originations resulted in gains of $174 million on mortgages sold to Fannie and Freddie, a 180% increase from gains of $62 million in the first quarter a year earlier.
Lenders were given plenty of sweeteners to participate in HARP 2.0, and critics have argued that rather than offering the lowest interest rates possible, these lenders are raking in outsized profits.
Lewis says the program has been quite profitable for lenders, but that this reflects the vagaries of the market.
"Everybody's stealing it," Lewis says, referring to gain-on-sale margins. "Several things go into that activity. Rates have moved around over the last six months, in a 50 basis point range, and that can create opportunities when you're selling to the secondary market."
The purpose of HARP 2.0 was to expand access to refinancing so underwater borrowers with loan-to-value ratios greater than 125% could take advantage of low interest rates and lower their monthly mortgage payments, reducing the potential for strategic defaults.
Still, Lewis framed the issue as one in which banks are simply doing their part to aid the housing recovery.
"We see it as an opportunity to help the communities in our footprint and help consumers maintain homeownership in a challenging environment," he says. "I don't know if it's helping the housing market recover but if borrowers get more affordable payments, there will be fewer foreclosures and the glut of inventory on the market will decline."
Volume of HARP 2.0 refinancings has been so high that some large lenders, lacking capacity to handle so many requests, are tightening underwriting just to keep from being inundated. For example, Wells Fargo has capped loan-to-value ratios at 105% for loans it does not service itself.
Fifth Third is bucking that trend. It accepts borrowers with LTVs as high as 150% LTVs—and may go even higher.
"We're confident at 150%," says Lewis. "We selected 150% as a starting point and will evaluate this continually and explore it going forward."
