A revised plan to help underwater borrowers refinance into historically low interest rates is likely to boost competition among mortgage lenders and roughly double the number of people already helped by the government program, according to analysts and industry representatives.
The Obama administration and federal regulators announced Monday that they would make several changes to the Home Affordable Refinance Program (HARP), including eliminating key obstacles that were stopping more homeowners from taking advantage of the plan. Those included broadening the number of eligible mortgages to include those that are deep underwater and scrapping required warranties and representations for lenders.
Analysts said that by eliminating mortgage buyback risk for servicers, lenders will now actively compete to reach eligible borrowers and increase refinancing activity.
"So if a [Bank of America] borrower has been current for six months, basically a Chase originator could go after that borrower, refinance them, and not be held to the original loan file that BofA had," said Matthew Jozoff, a managing director for JPMorgan Chase on a conference call with investors. "Consequently, we think that does increase the willingness of cross-servicing refinancing to take place."
Administration officials agreed, with Gene Sperling, the director of the National Economic Council, saying that the elimination of required warranties and representations would "unleash competition for housing refinance" for loans backed by Fannie Mae and Freddie Mac.
"Consider, right now for Americans who could benefit significantly from refinancing, there is way too little competition and incentive for banks to compete to help those families refinance," Sperling said.
Exactly what kind of impact that will have remains an open question, however. The Federal Housing Finance Agency (FHFA), the agency that regulates Fannie Mae and Freddie Mac and runs the HARP, estimated it would help roughly 800,000 borrowers.
Some analysts said that figure is significant, noting that the HARP program has already helped 1 million to date.
"Generally, it's positive. It appears it will expand refinancing opportunities to stressed borrowers," said Brian Harris, an analyst for Moody's Investors Services.
Citing the 800,000 estimate, Harris said, "If you take that as a floor you're at least doubling the program. That's not a trivial adjustment to the program."
But others were more skeptical, suggesting the revised program would have only a "modest impact."
"Even if HARP volume doubles and equals $250 billion over the next two years, it would still mean that HARP volume would account for about 10% of total volume," wrote Bose George, an analyst for Keefe, Bruyette & Woods.
Administration officials declined to offer a specific figure, instead pointing to a speech from Federal Reserve Board Gov. Betsy Duke who said 4 million borrowers are eligible for HARP.
Reduced barriers announced by FHFA could even "modestly expand that universe," Sperling said.