HARP 2.0's first phase is now underway. Seller/servicers that control GSE MSRs appear to be in the best position when it comes to refinancing high LTV Fannie Mae and Freddie Mac loans.The GSE regulator and Obama administration officials had hoped to make the process more competitive, allowing “new” seller/servicers to refinance loans controlled by others. But it now appears that servicer-against-servicer competition won't get under way until March when the GSEs get around to updating their automated underwriting systems to accommodate Home Affordable Refinancing Program revisions.
In the meantime, the current servicer can take advantage of the HARP 2.0 changes, which include waivers of representations and warranties on the original loan. “It would be in the current servicer's best interest to crank out these refinancings right away before the new servicers start picking them off,” said one industry executive.
When the Federal Housing Finance Agency (FHFA) first revealed the changes to the HARP program in October, lenders were optimistic that they would have a shot at refinancing more GSE loans. Most of these loans are owned or controlled by the five largest servicers.
When Fannie and Freddie finally released the details of the HARP 2.0 program on Nov. 15 reality quickly set in. Until the Desktop Underwriter update is released, “you have to be the servicer of the GSE loan in order to manually underwrite it,” one lender told ASR sister publication National Mortgage News after participating in a Fannie conference call. “It is clearly disappointing,” he added.
The first HARP program was launched in the spring of 2009 to help homeowners who are current on their mortgage but can't refinance because the value of their property has declined. To date, nearly 838,500 GSE loans with LTVs above 80% and up to 125% have been refinanced. Only 62,500 of those refinancings reached underwater borrowers with LTVs ranging from 105% to 125%. Government officials are hoping HARP 2.0 will reach more underwater borrowers, as well as borrowers with LTVs above 125%.
However, servicers are likely to shy away from refinancing loans with LTVs above 125% until Fannie and Freddie develop a securitization outlet for those mortgages.
Analysts at Keefe, Bruyette & Woods estimated HARP 2.0 will generate one million refinancings totaling $150 billion to $175 billion. Prepayment speeds are already elevated due to low mortgage rates. “We expect prepayment speeds to remain elevated in the coming months, driven by organic refinance activity and the impact in 2012 from HARP 2.0.” KBW analysts said in a recent report.
Meanwhile, “new” servicers can still perform HARP refinancings, but they will not receive the full relief on representations and warranties that HARP 2.0 promises.
“We do HARP loans every day,” said Quicken Loans chief economist Bob Walters. But he doesn't expect the new HARP program will generate much new business right away.
That's because Quicken has a relatively new servicing portfolio. And the HARP program is limited to loans originated before May 2009. As a “new” servicer, Quicken Loans finds refinancing GSE loans with mortgage insurance an obstacle. It is generally a “nonstarter,” Walters said. Borrowers with MI policies seeking to refinance are advised to contact their servicer. “Most MIs have different rules for modifying policies and it's extraordinarily complex,” he told NMN.
Until the MIs come up with a “cohesive process,” Walters said, it will be difficult to launch a “robust” HARP refinance program.
Genworth Financial vice president Anthony Guarino told NMN that mortgage insurance should not be a barrier to the process. “We have worked with FHFA and the GSEs for over a year to ensure that MI is not an impediment to HARP, and there are no MI-related impediments to refinance,” he said.
He stressed that lenders can contact the GSE to find out who the MI company is on a given loan. The next step entails informing the MI to modify the policy and roll it over.
Meanwhile, borrowers will benefit from the reduction in the loan-level fees the GSEs charge on HARP refinancings. The FHFA had capped the fees at 2% of the loan amount.
Now the fees have been lowered to 75 basis points for GSE borrowers that refinance into a 30-year fixed-rate mortgage and totally eliminated on 20-year FRMs. “That's good news,” Walters said, noting it will have “an impact right away.”
The Genworth executive said underwater borrowers with low credit scores generally got slammed with the higher fees. “It will open the door for more borrowers with low FICOs to refinance,” Guarino said