Lack of Competition Stifles Refinance Program for Underwater Homeowners
Government looks to expand HARP, but individuals who enter program rarely see lowest rates
April 10, 2012By Cora Currier, ProPublica
Some homeowners are getting stuck with relatively high interest rates even after they participate in the government's program to help them refinance their mortgages. The biggest banks are not lowering rates as much as they could and homeowners have few options to go elsewhere.
Analysts say that the big banks are set to make major profits off of the Home Affordable Refinancing Program, also known as HARP, which allows homeowners with loans backed by government-owned Fannie Mae and Freddie Mac to refinance if they owe more than their home is worth.
The program, launched in 2009, is designed to let struggling borrowers take advantage of lower market interest rates. So far, about 1.1 million people have refinanced under the program, which was expanded last fall to make it more attractive for banks and to let more homeowners participate.
The report says the big banks are able to make a considerable profit from refinancing their existing customers under HARP, and that there is little incentive for them to go outside their own customer base and seek out more HARP business on mortgages that originated with other lenders.
The result is that homeowners in many cases are stuck with what they've got, Amherst says, and the big banks can charge them more.
Here's how this situation came about.
Last fall's expansion of HARP tries to make it more appealing to mortgage lenders, since the initial response to the program fell short of expectations.
The Amherst report points out that the biggest lenders JP Morgan Chase, Bank of America, and Wells Fargo are responsible for more than 60 percent of HARP refinancing applications. The report also says the cost of refinancing an existing customer under HARP is minimal.
The big banks already have plenty of demand in-house. As such, it's easier and more profitable to stick with the loans they already service than to compete for new business, which could result in lower rates for homeowners.
The report says that the extra steps required under HARP to refinance a loan from another lender make the process onerous and risky. A spokeswoman for the Federal Housing Finance Agency (FHFA), which is in charge of HARP, disputed the notion that it's difficult to sign up new borrowers. "The additional information collected is minimal and appropriate, given that these lenders have no experience with or information on these (new) borrowers," she said.
The program is voluntary for banks, and they can place their own restrictions over and above those set by the government.
Update (4/6): A spokesman for Bank of America said in an email sent after this story published that the bank's goal is "to provide fair prices for HARP."